Home Equity Conversion Mortgage - HECM

If you watch TV during the middle of the day (game shows, reruns of NCIS, etc.), you'll see, between ads for diabetes medication and adult diapers, a lot of commercials for reverse mortgages. These financial structures involve a home owner receiving monthly checks in return for equity in their homes.

In a regular mortgage, you borrow money to buy a house. Then you pay the bank back for the loan in monthly installments.

As its name implies, a reverse mortgage flips this process around. You own the house in this case (or at least hold significant equity), and then the bank pays you monthly payments. In exchange, the bank eventually acquires your home equity.

The program is used to provide additional income for seniors. Fundamentally, they turn the equity in their homes into cash, distributed in regular monthly installments.

The home equity conversion mortgage is a form of reverse mortgage. The HECM differs from other reverse mortgages because it's insured by the federal government through the Federal Housing Administration (FHA).