Are you considering a reverse mortgage but unsure about the differences between a Home Equity Conversion Mortgage (HECM) and a proprietary reverse mortgage?  You’ve come to the right place.

In this guide, we’ll cover:

• What a proprietary reverse mortgage is
• When a proprietary reverse mortgage might be better than a HECM
• Qualifications for a proprietary reverse mortgage
• How the costs compare to a HECM

Whether you’re a homeowner looking to maximize your financial options, a family member helping a loved one, or simply curious about the benefits of proprietary reverse mortgages, this guide is designed to provide you with the clear, straightforward information you need to make the best choice for your situation.

Types of Reverse Mortgages

When considering a reverse mortgage, it’s crucial to understand the three main types available.  Each type has unique features and benefits, allowing you to select the best option based on your financial needs and the value of your home.

1. Home Equity Conversion Mortgage (HECM):
   • Often referred to as the “government” reverse mortgage, the HECM is the most common type.
   • Insured by the Federal Housing Administration (FHA): This federal backing provides significant protection for borrowers.
   • Eligibility: Available to homeowners aged 62 and older.
   • Benefits: Offers a variety of payout options, including monthly payments, a lump sum, a line of credit, or a combination of these.
2. Proprietary Reverse Mortgages:
   • These are non-FHA reverse mortgages offered by private lenders.
   • Higher Loan Amounts: Can offer larger loan amounts compared to HECMs, making them suitable for those with home values higher than the HECM national lending limit.
   • Flexibility: There may be different terms and eligibility criteria compared to HECMs, which offer more tailored solutions.
   • Custom Guidelines: Lenders can design their own set of guidelines, allowing for more flexible approval criteria.
   • Property Types: Can approve certain property types not eligible under FHA, such as non-FHA-approved condominiums.
3. Jumbo Reverse Mortgages:
   • A subset of proprietary reverse mortgages specifically designed for high-value homes.
   • Larger Loan Amounts: This option provides access to larger loan amounts, typically up to $4,000,000, with no property value caps. It is ideal for homeowners with significant home equity who need more funds than what HECMs offer.
   • No FHA Insurance: These loans do not have the same federal insurance, which means they come with different risks and benefits.

Understanding these types of reverse mortgages will help you make an informed decision about the right product for your needs and financial situation.  Whether you prioritize federal insurance, higher loan amounts, or flexibility, there is a reverse mortgage option to suit your circumstances.

What is a HECM (Home Equity Conversion Mortgage)?

The traditional reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), allows senior homeowners aged 62 and older to borrow against the value of their home.  The loan proceeds can be received through regular payments, a single lump sum, a home equity line of credit, or a combination of these options.

Key Features:

• FHA Insurance: HECMs are federally insured by the United States government, providing significant protection to lenders and borrowers.  These loans are non-recourse, meaning that the amount a borrower will owe when the loan comes due can never exceed the home’s value at the time of sale.
• Loan Limits: The government restricts loan conditions to ensure borrower safety.  One of these restrictions is the loan amount limit, which is capped at $1,149,825 as of 2024.
• Regulation and Mandatory Counseling: HECMs are regulated by the Department of Housing and Urban Development (HUD).  HUD sets limits on the amount of money a borrower can receive from the loan proceeds and requires potential borrowers to undergo mandatory counseling to understand all aspects of the product before proceeding.

Benefits of HUD Mortgage Insurance: One significant benefit of a government-insured HECM is that the government guarantees access to your funds by paying into the Mortgage Insurance Premium (MIP).  This ensures that even if the lender goes out of business, your line of credit remains available, and your access to funds is secure.

The insurance offers a layer of security that proprietary reverse mortgages lack.  Without this insurance, proprietary lenders can face financial difficulties, potentially leading to frozen lines of credit and losing access to funds.

Understanding these features and protections will help you determine if a HECM reverse mortgage is the right choice for your financial needs.  By offering federally backed security and clear regulations, HECMs provide a reliable option for senior homeowners looking to tap into their home equity for their lifetime.

Eligibility Requirements for Proprietary Reverse Mortgages

Qualifying for a proprietary reverse mortgage involves several key factors, similar to a regular reverse mortgage, but with some distinct differences:

• Lower Age Requirements: Unlike the government-insured HECM, which requires a minimum age of 62, proprietary reverse mortgages can lend to borrowers as young as 55.
• Jumbo Reverse Mortgages: Proprietary reverse mortgages are often called “jumbo reverse mortgages” due to their larger loan amounts.  These are especially beneficial for seniors with home values that exceed the government’s HECM limit of $1,149,825.  Through a proprietary reverse mortgage, these homeowners can access more significant equity.
• Ideal for High-Value Homes: Proprietary reverse mortgages are ideal for seniors with homes valued well beyond the government’s limit.  They provide access to substantial loan proceeds that wouldn’t be possible with a standard HECM.

Understanding these qualifications can help you determine if a proprietary reverse mortgage is the right option for your financial needs, especially if you own a high-value home and require a larger loan amount than what a HECM can offer.

Comparing HECM and Proprietary Reverse Mortgages

Jumbo Reverse Mortgage Rates

Like Any Mortgage, Compare!

When considering a reverse mortgage, comparing interest rates and fees is crucial to ensure you get the best deal.  Here are some tips to help you navigate the process:

• Compare Interest Rates and Fees: Interest rates and closing costs can vary significantly between reverse mortgage products.  When shopping around, compare these costs with those of traditional reverse mortgages (HECMs) to increase your chances of finding the most beneficial option.
• Consider Your Home’s Value: If your home’s value is under the HECM lending limit of $1,149,825, it may be worthwhile to consider traditional government-insured options.  These options often offer lower interest rates, more favorable terms, and the added security of federal insurance.
• Use a Reverse Mortgage Calculator: Our reverse mortgage calculator can help you shop for the best rates and products and find a reverse mortgage that best fits your financial situation.
• Seek Advice from Trusted Sources: Discussing your decision with trusted friends and family is always a good idea. Every individual borrower’s situation is unique, and those closest to you can offer personalized advice to help you make an informed decision before signing the dotted line.

By taking these steps and thoroughly comparing your options, you can ensure that you choose the reverse mortgage product that best suits your financial needs and goals.

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