While the majority of reverse mortgages are Home Equity Conversion Mortgages, or “HECM” loans, there are several reverse mortgage loan types to be aware of if you are in the market for tapping into your home equity. 

In this article, you will learn: 

• What differentiates each of the different reverse mortgage types
• Key elements that each type offers
• Resources and where to learn more

In addition to HECM loans, there are proprietary or “jumbo” reverse mortgages and single-use reverse mortgages.  Proprietary loans have recently gained popularity, particularly in areas with high home values.  On the other hand, single-use loans were more popular historically and may be more challenging to find in today’s market. 

What are the three types of reverse mortgages?

1. Home Equity Conversion Mortgages

HECM loans are by far the most popular type of reverse mortgage, accounting for the majority of reverse mortgages originated today. Because HUD insures the HECM under the Federal Housing Administration (FHA), the loan offers several compelling features, including a guaranteed line of credit, payment plans, and lifetime non-recourse protection.

2. Proprietary, or “Jumbo” reverse mortgages

Proprietary and Jumbo reverse mortgages typically are available to homeowners with homes valued above the HECM lending limit of $$1,149,825.  Private reverse mortgages are not subject to HECM program rules.  While they function much like HECMs, they may carry different terms, such as borrower age requirements and eligible property types. 

3. Single-purpose reverse mortgages

These loans are less common than the other types, and non-profits or government agencies typically offer them to allow borrowers to get a reverse mortgage with a single purpose.  The specified purpose might be making home modifications or allowing the borrower to pay property taxes.  Often single-use reverse mortgages have an income requirement, and those meeting a low-income threshold can qualify, depending on the program. 

What differentiates each of the different 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 different terms than 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, at age 55. 

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

Key elements

All reverse mortgages allow borrowers to access their home equity.  At the same time, they still live in the home — a key benefit for many retirees with substantial home equity but do not wish to sell their home. 

The different types of reverse mortgages also offer some distinct elements.  HECM loans, for example, carry government protections under the FHA insurance program.  They also require that all borrowers complete reverse mortgage counseling before completing a reverse mortgage application. 

In contrast, Proprietary loans allow borrowers to access additional home equity relative to the HECM program.

Single-purpose reverse mortgages are much more challenging to come by and can offer specific benefits depending on the program.  Some government programs offer property tax assistance or forgiveness as an alternative to tapping home equity to pay property taxes and/or avoid foreclosure. 

FAQs

Resources and where to learn more

For more information about the HECM program, HUD maintains online resources, including program rules, reverse mortgage counseling agencies, and a HUD-approved lender list.  Prospective borrowers can work directly with a reverse mortgage lender like All Reverse Mortgage to learn about proprietary and jumbo reverse mortgages. 

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

Also See: 

• HECM VS REVERSE MORTGAGE: IS THERE A DIFFERENCE?