The Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage product, accounting for 90-plus percent of the total market. Available since 1989, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development.

The amount of money you get from a HECM depends upon your age, appraised home value, and current interest rates. The older you are and the more valuable your home (and the less you owe on your home), the more money you get.

The location of your home also affects the loan size. The size of a HECM depends on the maximum loan limit, which varies by county and is adjusted annually. Currently (for 2006), the FHA loan limit varies from $200,160 (for rural areas) to $362,790 (for high-cost areas).

If the value of your home exceeds the FHA lending limit, the amount of money you are eligible to receive will be calculated as if the value of the home is the area limit. Practically speaking, if your home is worth $600,000, but the county lending limit is $362,790 (current maximum limit), the loan amount will be based on $362,790.

As part of the closing costs, you must pay a mortgage insurance premium (MIP), equal to 2 percent of the loan amount up-front, plus an annual premium thereafter equal to 0.5 percent of the loan amount. The insurance premium guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds.

Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid
Courtesy of NRMLA