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.

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. 

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. 

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Also See: 

• HECM VS REVERSE MORTGAGE: IS THERE A DIFFERENCE?