A Home Equity Conversion Mortgage (HECM) lets you skip the monthly principal and interest payment as long as you live in the home and keep paying property taxes, homeowners insurance and upkeep (24 CFR 206.205(a)(2) and 206.27(b)(5)-(6)). It also gives you FHA insurance that keeps you and your heirs from owing more than the home is worth, and a line of credit that can grow. Below are eight HECM rules, what each one gives you, what it takes from you, and the 2026 number or regulation behind it.
1. No principal and interest payment while you keep up the home
Pro: as long as you live in the home and keep paying property taxes, homeowners insurance and upkeep, you make no monthly principal or interest payment. For a retiree whose mortgage payment strains the budget, that frees the money every month.
Con: the interest doesn't go away. Under 24 CFR 206.19(g), interest is charged from the day money is paid out and added to your balance every month, so the balance compounds and your equity shrinks. You can slow that down: 24 CFR 206.209 lets you pay part or all of the balance at any time with no prepayment penalty.
2. FHA insurance protects you and your heirs, and you pay the premium
Pro: a HECM is non-recourse. Under 24 CFR 206.27(b)(8), the lender can collect only through the sale of the home, never from you or your heirs personally, and it can't get a deficiency judgment. If the balance ends up larger than the home is worth, FHA insurance covers the gap.
Con: the upfront premium is usually the largest closing cost of a HECM. HUD Mortgagee Letter 2017-12 sets an upfront mortgage insurance premium of 2% of the maximum claim amount, plus 0.5% a year on the outstanding balance. As a worked example from those two rates: on a home that counts at $800,000, the upfront premium is $16,000. On a home that counts at the full 2026 limit, it is $24,982.50. A balance of $300,000 adds $1,500 in annual premium that year, added to the loan balance. Our breakdown of what a reverse mortgage costs covers the origination fee and closing costs too.
3. Why the $1,249,125 limit cuts both ways in Orange County
Pro: HUD sets one national limit, $1,249,125 for case numbers assigned in 2026 under Mortgagee Letter 2025-22. Every HECM uses the same formula, so two lenders are working from the same rules and you can compare offers on fees and rates.
Con: HUD counts your home's value only up to that limit, which matters in Orange County. Redfin's data for July to September 2026 puts the median sale price in Fountain Valley, where our office is, at $1,409,329. A typical home in the city is already worth more than the HECM will count, and the value above the line does nothing for your loan amount. Owners of those homes often compare a jumbo reverse mortgage, which has no FHA premium but also no FHA insurance.
4. A line of credit that grows, but only on the adjustable rate
Pro: on an adjustable-rate HECM you can take a line of credit, and HUD's rules (24 CFR 206.25 and 206.3) make the unused part grow each month at the loan's interest rate plus the annual premium rate. A line you leave alone for years can give you more borrowing room later. Some borrowers open one and keep it as a standby fund.
Con: a fixed-rate HECM pays one lump sum at closing, and nothing after that. If you want the certainty of a fixed rate, you give up the growing line and the monthly payment options. Our guide to lump sum, monthly or line of credit compares all six choices.
5. The first-year cap: protection that holds money back
Pro: HUD caps how much you can take in the first 12 months, which makes it harder for anyone to push you into draining the loan at closing. Under HUD's model HECM loan agreement (section 1.8), the cap is the greater of 60% of your principal limit or your mandatory obligations plus 10% of your principal limit. Mandatory obligations include paying off your existing mortgage and the closing costs.
Con: if you wanted a large amount right away for something other than paying off a mortgage, the first-year cap can block it. On an adjustable-rate HECM the rest becomes available after the first year. On a fixed-rate HECM the single draw at closing is all you get, so the cap limits it permanently (24 CFR 206.25).
6. Counseling and the California seven-day pause
Pro: before a HECM, you meet with an independent HUD-approved counselor who has no stake in whether you go ahead (24 CFR 206.41). California adds a cooling-off period: under Civil Code 1923.2(k), a lender can't take your final application or charge you any fee until seven days after counseling. So a lender who presses you to apply within days of counseling is asking for something state law doesn't allow.
Con: it takes time, and the CFPB notes counseling agencies may charge a reasonable fee, though not to someone who can't afford it. If you're in a hurry to pay off a balloon or a tax bill, plan for the wait. Read what happens in HECM counseling to know what to bring.
7. What the financial assessment checks, and what it can hold back
Pro: the lender reviews your income, credit and bill-paying history to see whether you can keep up with property taxes, insurance and upkeep. Falling behind on those is one of the ways a HECM gets called due, so the review is there to catch that problem early.
Con: if the review raises a concern, the lender can hold back part of your loan in a Life Expectancy Set-Aside, a reserve that pays those bills for you (24 CFR 206.205). The set-aside protects the house, but it lowers the amount you can use for anything else. In Orange County, where the Treasurer-Tax Collector's two installments fall due November 1 and February 1, a set-aside can take a large bill off your calendar.
8. Your heirs can't owe more than the house, and they inherit less of it
Pro: when the loan comes due, HUD lets heirs who want to keep the home pay off the lesser of the balance or 95% of the home's current appraised value. If they sell, the non-recourse rule means they never cover a shortfall themselves.
Con: the equity you borrow and the interest that builds on it come out of the estate. The longer the loan runs, the less is left for them. Our guide to what happens to the house when you die walks through the timeline your heirs would face.
Can you refinance a HECM later?
Yes. A HECM can be refinanced into a new HECM, for example to count a higher home value or a higher HUD limit, or paid off with a conventional loan if you'd rather start making payments. A new HECM means new counseling, new closing costs and a new upfront premium, so it has to leave you meaningfully better off. Our reverse mortgage refinance guide covers when the numbers work.
Weighing the trade for your own home
Whether these trades are worth it depends on your plans. A homeowner who plans to stay for many years, values the non-recourse protection and has a home near or under the HUD limit gets the most from the program. A homeowner who may move soon, wants to leave the house free and clear, or owns a home well above the limit pays for protections they may never use. If you're still deciding whether a reverse mortgage belongs in your plan at all, start with is a reverse mortgage a good idea. If you want the trade priced for your home, Esther Buede at Choice Home Mortgage in Fountain Valley can run an estimate for your home, including whether it adds up. Visit our reverse mortgage page or call (949) 522-7310.
