What type of mortgage is FHA's Home Equity Conversion Mortgage (HECM)?

FHA's Home Equity Conversion Mortgage (HECM) is classified as a reverse mortgage. This type of mortgage allows homeowners, typically those aged 62 or older, to convert part of the equity in their home into loan proceeds, which they can use as they wish while remaining in the home. Unlike traditional mortgages where the borrower makes monthly payments to the lender, in a reverse mortgage, the lender pays the homeowner, and the loan amount, including accrued interest, is repaid only when the homeowner sells the home, moves out, or passes away.

This unique structure is designed to provide retirees with financial flexibility, offering a way to access their home equity without the need for immediate repayment. The other choices do not accurately describe HECM: a home equity line of credit typically requires monthly payments and is a revolving credit line; a home equity loan is a lump sum loan that must be repaid on a fixed schedule; and a closed-end mortgage refers to a loan with a set amount and term that does not allow for additional borrowing. These features distinguish HECM as specifically a reverse mortgage.