Retiring Before 65? How a HECM Can Help Pay for Medicare

Today, over 60% of retirees name healthcare costs as their top financial concern¹. Medicare can help assuage these fees with cost-effective medical coverage. However, with Medicare not kicking in until age 65 in most cases, early retirees must find a way to cover the healthcare gap so they are not left without coverage should they experience a health issue during this period.

A Home Equity Conversion Mortgage (HECM) can be a strategic option for early retirees who have equity in their home². You can keep ownership of your home while accessing the cash you need. Still, there are a few critical considerations to weigh before deciding whether a HECM is right for you when retiring before 65.

In this article (Skip to...)

• How a HECM can bridge the healthcare gap
• Ways to structure HECM funds
• Potencial HECM drawbacks
• Other ways to cover healthcare before Medicare
• FAQ

The healthcare gap between early retirement and Medicare

While retiring early is a goal for many Americans today, there are certain considerations one must make to ensure their needs are covered.

When you leave your job, you typically sacrifice your healthcare coverage³. Some employers do allow retirees to extend their coverage, but if your employer does not offer this, you may find yourself with a healthcare gap between early retirement and Medicare.

This is where a Home Equity Conversion Mortgage (HECM) comes in. Homeowners can use their existing home equity to obtain a cash loan or line or credit that they can use to cover medical costs until they are eligible for Medicare.

How a HECM can help bridge the healthcare gap

If you are retiring early and need to cover healthcare costs, a Home Equity Conversion Mortgage may provide the support you need.

An HECM is the most common type of reverse mortgage. To qualify, you must be 62 or older and have sufficient home equity to borrow against⁴. This replaces your original mortgage, so you no longer need to make monthly principal or interest payments.

HECMs are popular for good reason. With insurance from the Federal Housing Authority (FHA), homeowners don’t have to worry about paying more than their home’s value or losing ownership of their home⁵. Furthermore, repayment is not due until the last borrower or eligible non-borrowing spouse dies, or if the home is vacant for over 12 months.

An HECM can be especially valuable when you retire early. Medicare is not means-tested, so your income and assets have no bearing on your eligibility for Medicare⁶.

This can make an HECM a strategic way to pay for health insurance during early retirement before Medicare benefits kick in.

What experts are saying

Joshua Serrano, VP of Reverse Mortgages at West Capital Lending

“A reverse mortgage is just like any other loan—you’re borrowing money from a lender—but you don’t have to make a monthly mortgage payment. Over time your balance goes up instead of down.”

Ways to structure HECM funds

An HECM payout can be structured in several ways, offering added flexibility⁷.

• Lump-sum payout. With a lump-sum payout, funds are paid upfront for larger expenses. If you choose a lump sum but do not draw the entire balance, the remainder will be treated as a line of credit. However, this option is only available with a fixed-rate HECM.
• Monthly payouts. You may receive term payments that provide monthly payments for a fixed term, or you can choose tenure payments, which last as long as you live in the home and fulfill the loan terms. Either way, these ongoing payments provide a regular stream of income to help with health insurance premiums while you are awaiting Medicare eligibility.
• Line of credit. For ongoing needs, you can choose a line of credit. This applies to adjustable-rate HECMs and allows you to access funds as you need them instead of a fixed amount upfront or each month. Over time, your line of credit grows with you as you age, and you only pay interest on the funds you use, making it a more affordable option than a lump-sum payout.
• Hybrid. You can also combine payout options. For example, you may choose a line of credit with monthly payouts, or a small lump sum with the rest used for term payments.

This kind of flexibility makes HECMs especially attractive when you are retiring before 65 and need healthcare coverage.

HECM Payout Options: How You Receive Funds and What You’ll Pay

When this HECM strategy makes sense

There are some cases when an HECM makes sense.

• You want regular income. An HECM can provide reliable, ongoing income that is especially useful in retirement.
• You don’t want a mortgage payment. An HECM terminates mortgage payments⁸.
• You plan on staying in your home. If you and your spouse plan to stay in your home for more than five years, you don’t have to pay fees.
• You don’t want to pay taxes. HECM payments are not taxable⁹.
• You don’t want to risk your home. With FHA protection, you are not at risk of losing your home as long as you maintain the home and pay for required insurance and taxes.
• You want protection from lender default. HECMs carry FHA insurance, which protects you if your lender defaults.

Potential HECM drawbacks

There are some things to consider when choosing whether to use a HECM for your reverse mortgage.

For example, HECM loan fees and closing costs are typically higher than a traditional home equity loan or home equity line of credit (HELOC)¹⁰.

It is also critical to remember that you will have to pay interest on any funds you borrow¹¹. This accumulates over time and can result in a significant sum that lessens the inheritance for your beneficiaries.

However, there are some cases when an HECM may not be the best fit.

• You do not have sufficient equity in your home.
• You do not live in the home.
• You are under the age of 62, as you typically must be older to be eligible for a reverse mortgage.
• You plan on moving out of your home in under five years. If you do, you will be responsible for full repayment of the loan.
• You want to leave your home to your beneficiaries. In this case, the heirs will first have to repay the reverse mortgage in full, along with any accumulated interest.

HECM Limits

Additionally, it is critical that you consider asset limits.

If you plan to take out an HECM, you must fall within the Medicaid loan limits. The maximum claim limit in 2026 is ​​$1,249,125, up from $1,209,750 in 2025¹². In order to fall within the Medicaid asset limit, you may need to draw a larger amount than you originally intended.

Additionally, HECM loan limits apply.

2026 HECM Limits

Be sure to check your local laws, as some states have specific requirements surrounding home equity and asset limits.

Other ways to cover healthcare before Medicare

An HECM is not your only option for healthcare when you retire before 65.

COBRA

You may be able to extend coverage from your employer beyond your final date of employment via the Consolidated Omnibus Budget Reconciliation Act (COBRA)¹³.

This will likely mean higher premiums. However, it could help you maintain coverage for an additional 18 to 36 months.

Spousal coverage

If your partner is still working, you may be eligible to join their plan. This may cost more, so be sure to look into the specifics before you join.

Still, it could very well be more cost-effective than buying your own plan.

Part-time employment

You may be able to get a part-time job that offers healthcare benefits.

If you plan on collecting Social Security, you can earn up to $24,480 and still receive Social Security benefits¹⁴. This applies until you reach full retirement age.

Private plan

You can buy a health insurance plan from a private insurance company for coverage until you are eligible for full Medicare benefits. You can buy directly from an insurer, through an insurance broker or through the federal health insurance marketplace.

However you choose to buy, be sure to shop plans and compare coverage before selecting the right retirement plan for your pre-Medicare years.

Health savings account

A health savings account (HSA) is a tax-advantaged way to contribute to a high-deductible plan¹⁵. Contributions are tax-free, saving you valuable funds at tax time. You can then use the funds for qualified medical expenses not covered by your insurance policy.

The bottom line on using a HECM to bridge Medicare

Retiring before 65 requires extra considerations, especially when it comes to Medicare. With Medicare still a few years away, it is critical to account for the additional costs and tax liability that may accompany early retirement.

If you want help paying for pre-Medicare healthcare costs and plan on staying in your home for over five years, an HECM can provide the lump sum or steady stream of income you need to ensure healthcare coverage until full retirement age.

HECM to bridge Medicare FAQ