Home Equity Conversion Mortgage (HECM) Law and Legal Definition

Home equity conversion mortgage (HECM)is a type of federal housing administration (FHA) insured reverse mortgage. It is a type of mortgage in which the lender makes payments to the home owners. It enables senior home owners to convert the equity they have in their homes into cash. A home equity loan will require a credit check. A borrower qualifies on the basis of value of his/her home and age. Money is advanced against the value of the home. Interest accrues on the outstanding loan balance, but payments are not made until the home is sold or the borrower dies, at which point the mortgage is repaid entirely. Because the home secures the mortgage, credit check is not made on the borrower as mortgage. HECM has lower interest rates. It depends on how long the borrower expects to live or own the home. Since the FHA insures HECM loans, the borrower will not owe more than value of the loan in the event that the loan exceeds the value of the home's equity.