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Reverse Mortgages - Home Equity Conversion Mortgage (HECM)
The Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage product, accounting for 90 percent of the total market. Available since 1989 to homeowners 62 or older, 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 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 2005), the FHA loan limit varies from a low of $172,632 (for rural areas) to a high of $312,896 (for high-cost metropolitan areas). The 2005 loan limit for a particular area may be found at HUD's Web site.
HECM borrowers 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.