Are you considering a reverse mortgage and wondering about the term “proprietary” that has been mentioned?  Perhaps you’re curious about the distinctions between a “HECM” and a proprietary or private reverse mortgage.

In this overview, you’ll learn about the following:

• What is a proprietary reverse mortgage?
• When is a proprietary reverse mortgage better than a Home Equity Conversion Mortgage (HECM)
• What are the qualifications of a proprietary reverse mortgage?
• Do proprietary reverse mortgages have higher costs than a HECM?

Types of Reverse Mortgage Products

• ‘Regular’ reverse mortgage (HECM)
• A proprietary reverse mortgage (Non-FHA)
• Jumbo reverse mortgages – explicitly designed for high-value homes

What is a proprietary reverse mortgage?

When looking over the options to tap into your home’s equity through a reverse mortgage, some companies may offer “proprietary” reverse mortgages.  Naturally, this could lead you to ask yourself the fundamental differences between this and the regular reverse mortgages you hear about online and see in TV commercials.

A proprietary reverse mortgage provides the same basic concept of tapping into your home’s equity in several ways.  This can be either good or bad, depending on your situation.  Still, it takes the government out of the equation.  For instance, while the money you could receive in loan proceeds could be much higher than a regular reverse mortgage offer, the loan also lacks government protection.  It instead solely relies on the rules of the lender.

What is a “HECM” reverse mortgage?

A standard, non-proprietary reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), allows a senior homeowner at least 62 years of age to borrow against the value of their home.  Receiving that loan proceeds through regular payments, a single lump sum, a home equity line of credit, or sometimes a combination of more than one.

The United States government federally insures these regular reverse mortgages and acts as non-recourse loans.  The amount a borrower will owe when the loan comes due can never exceed the home’s value at the time of sale.

Because these reverse mortgages are government-insured, the government places certain restrictions on the loan’s conditions that must be met if the loan is to be approved by the agency that oversees it, in this case, the Federal Housing Administration (FHA).

One of those limits is the amount of money that can be loaned through a HECM reverse mortgage, which as of 2023, is capped by the agency at $1,089,300.

Government-insured reverse mortgages are regulated by the Department of Housing and Urban Development, which sets boundaries on much money a borrower can receive from the loan proceeds while also requiring potential borrowers to go through mandatory counseling so that they know all the facts surrounding this product before entering it.

What are the qualifications of a proprietary reverse mortgage? 

Lenders make their loan determinations when originating proprietary reverse mortgages.  The qualifying amount of loan proceeds is still, like a regular reverse mortgage, based on the home’s appraised value. 

However, because these loans aren’t restricted by the limits on proceeds that the government places on regular reverse mortgages, proprietary reverse mortgages can have much higher limits that can stretch, for some homes, into millions of dollars.

Therefore proprietary reverse mortgages are sometimes called “jumbo” reverse mortgages, as most borrowers tend to be seniors with home values that can be worth more than the government’s limit and sometimes well beyond it.

Why bother with a regular reverse mortgage if I can get more money from a proprietary product?

Your decision should take several considerations into account.  For most people, the amount of money they can get from a loan is a primary factor.  For instance, since Mortgage Insurance is not required for a proprietary reverse mortgage, lenders can charge higher interest rates and typically offer lower loan-to-value ratios than HECMs.

It is likely a good idea for potential borrowers to learn as much as possible through the required counseling that often comes with traditional and proprietary reverse mortgages before entering into a transaction.  Counseling helps minimize the possibility of being fiscally blindsided later by something a borrower may have yet to consider in the planning phase.

While traditional HECM reverse mortgages require counseling by law, most proprietary options have chosen to mimic the HECM in requiring counseling even if lenders aren’t legally compelled to do it.

Like any mortgage, compare!

Interest rates and fees should be compared when shopping around for a proprietary reverse mortgage.  Look at the rates and closing costs compared to those found in traditional reverse mortgage loans to increase the likelihood of entering a situation that most benefits you.

If you’re entertaining the idea of a proprietary reverse mortgage but are reasonably sure that your home’s value is under the HECM lending limit of $1,089,300, take a closer look at traditional government-insured option s and all the other associated expenses.

You can also take advantage of our reverse mortgage calculator, which can help you shop for the best rates and products to find one that fits your financial situation best.

It’s also a good idea to talk with your trusted friends and family while deciding if a reverse mortgage, either regular or proprietary, is a good fit.  That way, they can advise how to fund your retirement years.

Every individual borrower can have a very different situation.  Those closest to you can offer more personalized advice before signing the dotted line.

Proprietary FAQs