What you are paying for
A HECM costs 2% of your home's value upfront and 0.5% of the balance annually, paid to FHA rather than the lender. It is the largest single cost in the deal. Three guarantees come with it, and none of them are available at any price on a private product:
- Non-recourse, absolutely. If the balance exceeds the home's value when the loan ends, FHA pays the difference. Your estate is not billed, your heirs are not pursued, no other asset is reachable.
- Your line of credit cannot be frozen. A bank can cut a HELOC whenever it likes, and in 2008 banks did exactly that to hundreds of thousands of borrowers at the worst possible moment. FHA guarantees a HECM line even if your lender fails.
- Tenure payments continue for life. If you chose monthly payments for as long as you live in the home, they keep arriving — past the point where you have drawn more than the house is worth, past the point where the lender would want to stop.
Whether that is worth 2% depends on how much you value certainty. For most borrowers it plainly is.
The limits
- Age 62 for the youngest borrower on title.
- Home value counted only up to $1,249,125 for 2026. A $2 million home is calculated as though it were worth the limit — which is precisely when a proprietary reverse mortgage becomes worth pricing.
- Principal residence only. No second homes, no rentals.
- First-year draws capped at 60% of the principal limit, or mandatory obligations plus 10%, whichever is greater.
Fixed or adjustable
This choice matters more than borrowers expect, and the answer is usually the same.
| Feature | Fixed rate | Adjustable rate |
|---|---|---|
| How you receive it | One lump sum at closing. That is the only option. | Lump sum, term, tenure, line of credit, or any combination. |
| Line of credit | Not available | Available, and the unused portion grows |
| Change later | No | Yes, for a small fee |
| Interest charged on | The full amount, from day one | Only what you have drawn |
| Suits | A large mortgage payoff consuming most of the proceeds anyway | Nearly everyone else |
Why fixed is usually the wrong choice
A fixed-rate HECM forces you to take every dollar on day one, which means interest and insurance start accruing on the entire balance immediately — including on money you will not spend for a decade. Take the same amount as a line of credit and you are charged only on what you actually draw, while the untouched remainder grows. Unless a mortgage payoff is consuming nearly all of your proceeds, adjustable wins on arithmetic.
The growing line of credit
The most valuable feature of the program, and the one least understood. The unused portion of a HECM credit line grows at the loan's rate — the same rate charged on the drawn balance. An untouched line is larger every year, regardless of what happens to your home's value or the housing market.
The practical consequence: a 62-year-old who opens a line and leaves it alone may have substantially more available at 80 than the original figure, and it cannot be cancelled in the meantime. Retirement researchers have written extensively about using it as a standby buffer — drawing on it in years the market is down so a portfolio is not sold at a loss, and leaving it alone otherwise.
What can go wrong
The honest list, in order of how often it actually happens:
- Property charge default. Not paying taxes or insurance. The leading cause of HECM foreclosure by a wide margin, and entirely preventable with a set-aside.
- Moving sooner than planned. Costs of $20,000 need years to earn back. Under five and it was a bad trade.
- Non-borrowing spouse handled wrongly. Rare now, catastrophic when it happens.
- Taking a lump sum and spending it. The money does not come back, and the balance compounds either way.
What this estimate is, and what it is not
These figures are an illustration for planning only — not a loan offer, not a commitment to lend, and not a guarantee of what you will receive. Your real numbers depend on a completed appraisal, the expected interest rate on the day your FHA case number is assigned, your existing mortgage payoff, and a HUD financial assessment. A reverse mortgage is a loan that must be repaid, not a government benefit. You remain responsible for property taxes, homeowners insurance and upkeep, and the loan can become due if you stop meeting those obligations.