Reverse Mortgage Loans (HECM and Home Keeper)

Updated 2026-05-17

Reverse mortgage loans allow homeowners, typically seniors, to convert a portion of their home equity into cash without having to sell their home or make monthly mortgage payments. These financial products are designed to provide financial flexibility by leveraging home equity to supplement income, pay off debt, or cover expenses, while retaining ownership of the home.

Two prominent types of reverse mortgage loans are the Home Equity Conversion Mortgage (HECM) and the Home Keeper mortgage loan.

Home Equity Conversion Mortgage (HECM)

The Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage in the United States. It is insured by the Federal Housing Administration (FHA) (FHA), which is part of the Federal Housing Administration (FHA) (HUD). The HECM program is governed by HUD.

HECM Key Characteristics and Features

• Age Requirement: All borrowers must be at least 62 years old.
• Homeownership and Occupancy: The home must be the borrower's primary residence. Borrowers must continue to live in it and maintain it.
• No Monthly Mortgage Payments: Borrowers are not required to make monthly mortgage payments. However, they remain responsible for property taxes, homeowner's insurance, and home maintenance.
• Loan Repayment: The loan becomes due and payable when the last surviving borrower leaves the home permanently (e.g., sells the home, moves out, passes away, or lives elsewhere for more than 12 consecutive months).
• Non-Recourse Loan: The amount owed can never exceed the value of the home at the time of repayment. This means borrowers or their heirs cannot owe more than the home's value.
• FHA Insurance: HECMs are insured by the FHA. This insurance protects both the borrower (ensuring they receive their payments) and the lender (covering losses if the loan balance exceeds the home's value).
• Mandatory Counseling: Borrowers are required to undergo counseling with an independent, HUD-approved counseling agency to ensure they understand the terms and implications of a HECM.

Home Keeper Mortgage Loan

The Home Keeper mortgage loan is a conventional reverse mortgage product offered by Government Sponsored Enterprise (GSE) Fannie Mae. Unlike HECM loans, it is not insured by the FHA. Servicing requirements for these loans are detailed in the Fannie Mae Reverse Mortgage Loan Servicing Manual.

Home Keeper Specifics

• Interest Rate Adjustments: All Home Keeper mortgage loans use ARM Plan 1526. This plan has no per-adjustment interest rate cap but a lifetime interest rate adjustment cap of 12% above the initial rate. Adjustments occur monthly based on an index value (30 days before adjustment date) plus the mortgage loan margin, rounded to the nearest 0.125%.
• Late Charges: For Home Keeper loans, a scheduled tenure payment is late if not mailed or electronically transferred on the first business day of the month. An unscheduled line of credit payment is late if not disbursed within five business days of a written request. The initial late charge is 10% of the amount due, plus interest for each additional day. Fannie Mae does not reimburse servicers for these late charges.
• Servicer Requirements: Servicers must comply with specific requirements for Home Keeper loans, including those related to property insurance (referencing Servicing Guide B-2) and lender-placed insurance (referencing Servicing Guide B-6-01).

Common Concepts for Reverse Mortgages

Both HECM and Home Keeper loans share several fundamental concepts regarding how funds are accessed and managed.

Principal Limit

The Principal Limit represents the maximum amount of cash available to a borrower at the time of loan origination. This limit is a crucial factor in determining the funds accessible to the borrower throughout the life of the loan.

Determination Factors

The original principal limit is primarily a function of:

• The age and number of borrowers.
• The value of the property.
• Whether the borrower chose an equity share feature (for some older mortgage loans originated before August 10, 2000).

Adjustments and Net Principal Limit

The original principal limit is reduced by:

• Allowable closing costs or third-party fees that the borrower chooses to finance.
• An allocation for expected servicing fees over the life of the mortgage loan.
• If applicable, "set-asides" to reserve funds for the first year's property charges and required property repairs, as well as any mortgage loan advances made at closing.

The amount remaining after these reductions is called the "net principal limit at origination." This net amount is then used to determine the available line of credit or scheduled payments for the borrower under their chosen payment plan. Changes to a borrower's payment plan may involve recalculating a new net principal limit based on previous payments made and any partial repayments.

Payment Plan Options

Reverse mortgage loans offer borrowers several payment plan options to receive funds, dictating the frequency and nature of disbursements from the principal limit.

Types of Payment Plans

1. Tenure Payment Plan:

   • Frequency: Provides scheduled equal monthly payments.
   • Start Date: Payments begin on the first day of the month after the mortgage loan is closed.

2. Line of Credit Payment Plan:

   • Frequency: Allows unscheduled payments upon borrower request.
   • Disbursement: The borrower must specify the amount for each disbursement. The entire line of credit can be disbursed at closing.

3. Modified Tenure Payment Plan:

   • Hybrid: Combines features of both tenure and line of credit plans.
   • Structure: A portion of the principal limit is set aside as a line of credit, and the borrower receives scheduled equal monthly payments based on the reduced principal limit, along with unscheduled payments from the line of credit.

Conditions for Continued Payments

Payments under any plan continue as long as:

• The principal limit has not been reached.
• The borrower occupies the property as their principal residence.
• The borrower has not violated any mortgage covenants that would result in the loan becoming due and payable.

Changing Payment Plans

Borrowers may change their payment plan as often as desired. When a change occurs:

• A new monthly payment and/or line of credit is established.
• Funds in any set-aside accounts are not affected.
• The servicer may charge the borrower up to $50 to process each request for a payment plan change. This fee can be financed, which would reduce the new net principal limit.
• Borrowers can suspend and restart scheduled payments without a fee.

Servicers must retain the borrower's signed acceptance of any payment plan change in the individual mortgage loan file.

Mortgage Loan Balance Accrual

The loan balance increases over time due to disbursements, accrued interest, and capitalized servicing fees. Partial repayments decrease the balance and make funds available for future withdrawal.