Comparing the Top 3 Reverse Mortgage Types in 2024

May 2, 2024

If you’re considering using your home’s equity to boost your finances during retirement, it’s important to know that there are several types of reverse mortgages available, each with its own benefits and uses.

In this article, we’ll cover:

The three main types of reverse mortgages: Home Equity Conversion Mortgages (HECM), proprietary (or “jumbo”) reverse mortgages, and single-purpose reverse mortgages.
Key features of each type: We’ll discuss what makes each type unique and how they can fit your financial needs.
Where to find more information: Get resources to help you decide which option might be best for you.

Table of Contents

• Three Types of Reverse Mortgages: An Overview

• 1. Home Equity Conversion Mortgages (HECM)

• 2. Proprietary or “Jumbo” Reverse Mortgages

• 3. Single-Purpose Reverse Mortgages

• Key Features and Distinctions Among Reverse Mortgage Types

• Reverse Mortgage Comparison: HECM, Proprietary, and Single-Purpose Options

• Exploring Reverse Mortgage Options: Resources and Contacts

• Top FAQs

Three Types of Reverse Mortgages: An Overview

Home Equity Conversion Mortgages are the most common type, but if your home has a high value, you might consider a proprietary reverse mortgage. These have become more popular in areas with expensive real estate.

On the other hand, single-purpose reverse mortgages are less common today but can be a good choice if you need help with specific expenses like home repairs or property taxes.

1. Home Equity Conversion Mortgages (HECM)

HECM loans are the most commonly chosen type of reverse mortgage, making up the bulk of the market. Insured by the HUD under the Federal Housing Administration (FHA), these loans offer several attractive features, such as a flexible line of credit, various payment options, and lifetime non-recourse protection, ensuring borrowers will never owe more than their home’s value at the time of sale.

2. Proprietary or “Jumbo” Reverse Mortgages

Proprietary or jumbo reverse mortgages are designed for homeowners whose properties are worth more than $1,149,825, the maximum value covered by standard HECM loans. These private loans aren’t bound by the same regulations as HECM loans. They work in a similar way but can have different requirements, such as allowing younger homeowners to apply and including different types of properties.

One significant advantage of these loans is that they often have lower closing costs because they don’t require upfront mortgage insurance premiums, which can be quite expensive. This can save you up to $22,996.50.

3. Single-Purpose Reverse Mortgages

Single-purpose reverse mortgages are special loans from non-profit organizations and government agencies. Unlike other types of reverse mortgages, these are designed for one specific use. For example, you might be able to get a loan to make your home more accessible or to pay your property taxes.

These loans are generally aimed at lower-income homeowners. Depending on the program’s rules, you might qualify for one of these loans if your income is below a certain level.

Key Features and Distinctions Among Reverse Mortgage Types

HECM loans, as the most common reverse mortgage type, are insured by the Federal Housing Administration under a program administered by the Department of Housing and Urban Development. Every HECM borrower is required to pay an insurance premium.

As part of the insurance program, borrowers are entitled to several protections:

– The borrower will never owe more to repay the loan than the home is worth at the time of sale

– The borrower will continue to receive loan payments as agreed upon under the terms of the loans, even if the lender should go out of business

Many HUD-approved lenders offer HECM loans. Proprietary loans, in contrast, are typically offered by a single lender or a group of lenders. While they generally work the same way as HECM loans, their proprietary nature allows them to offer terms different from HECM loans.

For example, many proprietary reverse mortgages allow borrowers to access home equity amounts well over the federal lending limit. Some also allow borrowers to qualify before reaching the minimum HECM age of 62, which is 55.

A government agency generally offers single-use reverse mortgages for a particular purpose.

Reverse Mortgage Comparison: HECM, Proprietary, and Single-Purpose Options

Features	HECM	Proprietary	Single-Purpose
Government-Insured	Yes	No	No
Loan Limits	$1,149,825	$4,000,000	Low, intended for specific purposes
Age Requirement	62 years or older	55	Varies, often 62 years or older
Property Type	Single-family homes, FHA-approved condominiums	May include a broader range of property types	Typically restricted to primary residence
Use of Funds	No restrictions	No restrictions	Specific purpose (e.g., home repairs)
Counseling Requirement	Mandatory HUD-approved counseling	Mandatory HUD-approved counseling	May be required
Mortgage Insurance Premium	Required	Not required	Not applicable

This table provides a comparison of 3 types of common reverse mortgages: HECM, proprietary, and single-purpose reverse mortgages across various features, such as whether they are government-insured, their loan limits, age requirements, property type eligibility, usage of funds, counseling requirements, and mortgage insurance premiums.

Exploring Reverse Mortgage Options: Resources and Contacts

For more information about the HECM program, HUD maintains online resources, including program rules, reverse mortgage counseling agencies, and a list of HUD-approved lenders.

Prospective borrowers can learn about proprietary and jumbo reverse mortgages directly with a reverse mortgage lender like All Reverse Mortgage.

For single-purpose reverse mortgages and other programs available to homeowners in specific cities and states, homeowners can contact their local housing agency.

Top FAQs

What is the most common type of reverse mortgage in 2024?

The most common type of reverse mortgage in 2024 is the HECM (Home Equity Conversion Mortgage). The federal government insures this reverse mortgage program through HUD/FHA.

What type of reverse mortgage has the lowest cost?

The type of reverse mortgage with the lowest costs currently known is the Proprietary (Jumbo) reverse mortgage program. HUD does not insure these programs and has no mortgage insurance premiums.

What is the most commonly used reverse mortgage?

The HECM (Home Equity Conversion Mortgage) is the most commonly used reverse mortgage. Moreover, the line of credit option is the most commonly used HECM loan due to the loan’s line of credit growth feature.

What is the difference between HECM and reverse mortgages?

The difference between a HECM (Home Equity Conversion Mortgage) and a reverse mortgage is that a HECM is a specific type of reverse mortgage loan, while a reverse mortgage encompasses both HECM and proprietary loan programs.

What lenders offer proprietary reverse mortgages?

Many different lenders offer proprietary reverse mortgages in some capacity. All Reverse Mortgage, Inc. does offer proprietary reverse mortgages.

Also See:

HECM VS REVERSE MORTGAGE: IS THERE A DIFFERENCE?

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Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

5 Comments on this Article

Ann
May 21st, 2024

Thank you for all the information Need to go home from library and read all Very well laid out Lots of answered questions I'm just living on SS not enough to pay bills Handicap now cant work anymore Gonna loss my home only owe 7,500 Struggled all my life Its not Hugh Lost it in Hurricane Katrine had to remortgage again Now old and not enough to live on anywhere

Thanks
Reply to Ann
- Michael Branson
  May 22nd, 2024
  
  Hello Marilyn,
  I can't see how your loan would be affected without analyzing your current circumstances compared to how you would fare with a loan at today's rates, but I am fairly certain I would not advise refinancing at this time. Interest rates are higher now. Your current rate is probably not at the capped rate you listed, but is likely comparable to rates for a new loan. Since your loan is capped at 8.641%, refinancing now would set your cap based on today's rates, which would be much higher (though this would only affect you if interest rates were to rise above your current rate cap).
  If you are interested in possibly refinancing to get more money, it might be a good reason to check if you could benefit from a refinance based on an increase in your property value if your home has become more valuable. In that case, you would compare what you have left in your line to what you would get at today's rates to see if a refinance is advantageous for you. But since your motivation is for a lower rate, I would advise against it.
  There are other things to consider. If you have a high margin on your loan, you may want to watch the rates over the next several months. If rates start to come down as many predict, due to it being an election year and the expectation of inflation starting to subside, there is a possibility that interest rates will drop, making refinancing more attractive. In that case, you may benefit from both better rates and possibly more money available to you. I suggest you keep watching our site at https://reverse.mortgage/rates and scroll down a little to see the current rates. This is an easy way to see when rates are dropping and when it might be a good time to start inquiring about a refinance.
  Reply to Michael
Marilyn S.
May 16th, 2024

Hello Michael,

I am currently in a reverse mortgage, and at 77 years of age and in good health. Under the terms of the mortgage, I have another 5 years to draw on my equity line (approximately $80K). I am capped at an interest rate of 8.641%; the interest rate may not increase beyond this amount. However, originally the loan was tied to the LIBOR 3-month US rate, which has now switched over to the SOFR index. Would this be a good time to look into refinancing the existing reverse mortgage to achieve a lower interest rate?
Reply to Marilyn
Jim T.
March 14th, 2024

We have two main reasons for considering a reverse mortgage. First and foremost, we wish to remain in our home for the rest of our lives. I am 86, my wife is 85, and we are both healthy. Second, we are looking for the maximum cash out to supplement our retirement finances. Our townhome is valued at $300K, with a loan balance of $200K. HECM is not an option. Thank you for your comments or suggestions.
Reply to Jim
- Michael Branson
  March 15th, 2024
  
  Hello Jim,
  One factor that determines how much money you will receive with a reverse mortgage is interest rates. Current rates are not favorable for borrowers who want or need to maximize funds with their reverse mortgage. The question is, when will interest rates come down? Unfortunately, no one knows that for sure, but until inflation begins to fall meaningfully, most concur that interest rates will not drop significantly.
  I advise you to keep watching the rates, especially if you see advertisements that rates are dropping. At any rate, you're already at roughly 67% debt on the home now, so there won't be a tremendous amount of money available even if rates do come down. I think you need to ask yourself if it would be worth your while to complete the loan with the savings alone from not having to make a payment for the rest of your life.
  Otherwise, I am not a retirement planner and would not try to offer advice on specifics as they relate to your retirement situation. The only thing I can really do is explain the reverse mortgage program and what affects it, and I hope the information helps you make some decisions or at least know what to look for.
  Reply to Michael

Compare Top 3 Reverse Mortgages

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