Welcome to our comprehensive guide on proprietary reverse mortgages!  If you’re considering a reverse mortgage and curious about the distinctions between a Home Equity Conversion Mortgage (HECM) and a proprietary reverse mortgage, this guide is for you.

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

  • What is a proprietary reverse mortgage?
  • When is it better than a Home Equity Conversion Mortgage (HECM)?
  • What are the qualifications?
  • How do the costs compare to a HECM?

Whether you are a homeowner exploring your financial options, a family member assisting a loved one, or simply curious about how proprietary reverse mortgages work, this guide will provide the information you need to make an informed decision.

ARLO teaching proprietary reverse mortgage

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: May have different terms and eligibility criteria compared to HECMs, offering 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: 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, which provides significant protection to both 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 referred to as “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

Government HECMProprietary
2024 Lending Limit$1,149,825$4,000,000
Payout OptionsLump Sum
Line of Credit
(Guaranteed for life)
Lump Sum
Line of Credit (Maximum 10 year draw period)
Lump Sum LimitationsYES - 60% of available proceeds within first 12 monthsNO
Mortgage InsuranceYes - 2% Upfront and .50% ongoing NO
Line of Credit Guaranteed Growth RateYESMax 7 Years
Non Recourse YESYES
Property Types Single Family Residence, FHA Approved Condo, PUD, 2-4 UnitsSingle Family Residence, FNMA Warrantable Condo, PUD, 2-4 Units
Special Approval for CondominiumYESNO

Jumbo Reverse Mortgage Rates

Fixed RateAdjustable RateLending Limit
8.990% (9.075% APR)11.585% (6.625 Margin)$4,000,000
9.625% (10.146% APR)11.710% (6.750 Margin)$4,000,000
9.690% (9.775% APR)11.835% (6.875 Margin)$4,000,000
9.875% (10.407% APR)$4,000,000
Fixed Rate Payment Options: Lump Sum
Jumbo APR Illustration: Scenario is for a 70 year old borrower in California with a $1,000,000 loan amount, includes standard 3rd party closing costs.
Adjustable-Rate Payment Options: Lump Sum or Line of Credit
Index: 12-Mo. CMT
Lifetime Cap: 5% Over Start Rate

Like Any Mortgage, Compare!

When considering a reverse mortgage, it’s crucial to compare interest rates and fees 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 and more favorable terms, along with 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: It is always a good idea to discuss your decision with trusted friends and family. 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.

Top FAQs

Q.

What is a proprietary reverse mortgage?

A proprietary reverse mortgage is a loan product not insured by the Federal Housing Administration (FHA) and offered by private lenders.  Unlike traditional reverse mortgages, which are designed for homeowners who are 62 years of age or older, proprietary reverse mortgages are often available to borrowers with high home values and to borrowers as young as 55.
Q.

When is a proprietary reverse mortgage better than a HECM?

Several instances exist when a proprietary reverse mortgage can be better for a borrower than a HECM loan.  Most often, it is due to the property value.  The current limit for 2024 for value on a HECM loan is $1,149,825, and there is no limit on the value for these loan programs.  Proprietary programs can have loan amounts as large as $4 or $5 million.  Other instances include property types not eligible for FHA and underwriting guidelines that differ from FHA.
Q.

Is there mortgage insurance on a proprietary reverse mortgage?

No.  The government does not insure these reverse mortgage types; therefore, no mortgage insurance premiums are required.
Q.

Do proprietary reverse mortgages have higher closing costs than a HECM?

In most instances, the answer is no because no mortgage insurance premiums exist.  While most proprietary loans have significantly lower costs than a HECM loan, there are rare instances where the costs would be higher.  Those instances only occur at very high property values.
Q.

Do proprietary reverse mortgages have higher interest rates than a HECM?

On average, yes.  As of January 2024, HECM programs have rates from the mid-6 % to low 7% range.  Proprietary programs have rates from 9% to the mid-11 % range.  The lower the rate, the lower the loan-to-value you can borrow.`
Q.

Is the proprietary reverse mortgage program available in Texas for borrowers under 62?

Proprietary programs are available in Texas, but Texas law requires borrowers to be at least 62 to be eligible for a reverse mortgage.
Q.

Is a proprietary reverse mortgage Non-FHA?

Yes, a proprietary reverse mortgage is Non-FHA.  Unlike FHA-insured reverse mortgages, HUD does not insure jumbo or proprietary reverse mortgages.  However, they offer similar features, such as no mortgage payment requirements and a non-recourse clause, which means borrowers or their heirs will not owe more than the home is worth when the loan is repaid.
Q.

Can I rent rooms as an Airbnb if I have a proprietary reverse mortgage?

The documents for a jumbo or proprietary program are written by the investor who offers the program and, therefore, could be different.  You cannot use the property for transient purposes on the HECM program.  Therefore, I recommend you carefully review your documents to see what they say.  Remember, your lender only has the authority or power you granted them when you agreed to the loan terms and signed the documents.
Q.

Does a proprietary reverse mortgage need to have HUD approval for my condo?

You may apply for proprietary programs if your property value is $450,000 or higher.  These programs typically have more streamlined approval processes and require less documentation.  For example, the underwriting for the Platinum Reverse Mortgage only requires the condominium to meet FNMA warrantable guidelines.  However, an HOA questionnaire must still be completed and returned by the HOA as part of the process.