The Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage product. Available since 1989 to homeowners 62 or older, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development.
Eligible home types include single-family homes, manufactured homes built after June 1976, condominiums, and townhomes.

The size of a HECM varies with: (1) the borrower's age; (2) the value of the home; and (3) current interest rates. The location of the borrower’s home also affects the loan size. The maximum size of a HECM depends on the FHA Loan Limit, which varies from area to area and is usually adjusted annually.

Currently (for 2003), the FHA loan limit varies from a low of $154,896 (for rural areas) to a high of $280,749 (for high-cost metropolitan areas). The 2003 loan limit for a particular area may be found at HUD's Web site. FHA provides free software to lenders to help compute the applicable loan amount for each borrower.

Borrowers can choose to receive the proceeds from a HECM as (1) a lump sum payment, (2) fixed monthly payments, (3) a line of credit, or (4) a combination of these.

The fee charged to a borrower for a HECM is limited. The origination fee can't exceed $2,000 or 2 percent of the maximum claim amount (the FHA loan limit), whichever is greater. In 2002, therefore, this 2 percent limit ranges between $3,098 (2 percent of $154,896) and $5,615 (2 percent of $280,749). The entire amount of the origination fee may be financed as part of the mortgage, and certain other closing costs. FHA Mortgagee Letter 00-10 spells out the size of the origination fee that may be charged to borrowers and what the fee cap covers.

HECM borrowers must also pay an FHA insurance premium, equal to 2 percent of the loan amount up-front, plus an annual premium thereafter equal to 0.5 percent of the loan amount.

Typically the only cost that a borrower must pay for upfront out of pocket is for an appraisal fee. The remaining closing costs and fees generally can be financed as part of the reverse mortgage.

The interest rate charged on a HECM adjusts either monthly or annually, depending on which option the borrower chooses. However, these adjustments don't alter the monthly payments that borrowers can receive (if they have chosen the monthly payment option). Instead, the adjustment affects the total interest that is charged on the loan, which is added to the loan balance while the loan is outstanding and is paid when the loan becomes due.

A borrower is not required to make any mortgage payments to the lender during the life of the HECM. The HECM becomes repayable, in full, when the sole remaining borrower dies or no longer occupies the home as his or her principal residence (e.g., through a sale of the home or a permanent move out of the home). The repayment obligation is equal to the sum of the total funds received by the borrower, interest, and any closing costs and other charges financed as part of the loan.

The borrower or borrower's heirs/estate may pay off the loan and keep the home. If not, the lender is repaid when the home is sold. If the sales proceeds exceed the amount owed, excess proceeds go to the borrower or borrower's heirs/estate. If the proceeds are less than the amount owed, FHA absorbs the shortfall and makes an insurance claim payment to the lender.