Are borrowers allowed to choose the type of interest rate and payment option in a HECM transaction?

Under the National Housing Act, a borrower has the statutory right to select his or her interest rate (fixed or adjustable) at the time the reverse mortgage is originated under the Home Equity Conversion Mortgage (HECM) program. 

Where a borrower selects a fixed interest rate, the borrower will receive a Single Disbursement Lump Sum payment option at loan closing, with no future draws available to the borrower. 

Where a borrower selects an adjustable interest rate, the borrower will be permitted to choose from the following payment options: 
•Line of Credit
•Term
•Tenure
•Modified Term, or
•Modified Tenure 

For more information see ML 14-10 available at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee

HECM Final Rule § 206.13  https://www.govinfo.gov/content/pkg/FR-2017-01-19/pdf/2017-01044.pdf


All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-03757