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Home Equity Conversion Mortgages are for eligible borrowers age 62 or older, and feature no monthly mortgage payment for the borrower. Changes were announced effective June 2014.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Program Changes for FHA Home Equity Conversion Mortgages

July 30, 2014

FHA HECM loans--Home Equity Conversion Mortgages--are for eligible borrowers age 62 or older, and feature no monthly mortgage payment for the borrower. An FHA HECM loan features a lump sum or regular cash dispersal as agreed upon between the borrower and lender. The “no mortgage payment” feature means the HECM loan isn’t due until the borrower either dies or sells the property. That’s when the loan becomes due in full, and the loan is paid from the proceeds of selling the property.

Changes were announced by the FHA and HUD to the FHA HECM program that alter the way money is paid out to borrowers depending on the type of HECM loan. Borrowers with fixed-rate HECMs have different payment terms than those with adjustable rate HECM loans under the revisions to FHA loan rules which became effective at the end of June 2014.

What are the changes to the fixed rate HECM loan? According to the FHA official site, “FHA will only insure fixed interest rate reverse mortgages where the mortgage limits the mortgagor to:

–A single, full draw to be made at loan closing; and
–Does not provide for future draws by the mortgagor under any circumstances.”

Before the FHA changes, qualified HECM borrowers could apply for a HECM loan to be paid out in either a lump sum, line of credit, or future cash payments on a regular basis. Under the new regulations, fixed rate HECM loans no longer offer any payment but the lump sum.

The reverse is true for adjustable rate HECMs. According to the FHA official site:

“FHA will only insure adjustable interest rate reverse mortgages where the payment plan option is either:

–Tenure;
–Term;
–Line of Credit;
–Modified Tenure; or
–Modified Term.

The Single Disbursement Lump Sum payment option shall not be used for adjustable interest rate HECMs. All other HECM program requirements remain unchanged for adjustable interest rate HECMs.”

These new rules are effective for all FHA HECM loans with case numbers assigned on or after June 25 2014.

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