Proprietary Reverse Mortgage: 2024 Lenders, Rates & Limits
Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively. (License: NMLS# 14040) |
All Reverse Mortgage's editing process includes rigorous fact-checking led by industry experts to ensure all content is accurate and current. This article has been reviewed, edited, and fact-checked by Cliff Auerswald, President and co-creator of ARLO™. (License: NMLS# 14041) |
Are you considering a reverse mortgage, and perhaps you’re curious about the distinctions between a “HECM” and a proprietary reverse mortgage?
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?
Types of Reverse Mortgage Products
- ‘Regular’ reverse mortgage (HECM)
- Proprietary reverse mortgages (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.
The 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?
The traditional 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 2024, is capped by the agency at $1,149,825.
Government-insured reverse mortgages are regulated by the Department of Housing and Urban Development, which sets boundaries on how 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 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, these reverse mortgage types 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 HECM if I can get more money from a proprietary program?
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.
HECM vs. Proprietary
Government HECM Proprietary
2024 Lending Limit $1,149,825 $4,000,000
Payout Options Lump Sum
Line of Credit
(Guaranteed for life)
Lump Sum
Line of Credit (Maximum 10 year draw period)
Lump Sum Limitations YES - 60% of available proceeds within first 12 months NO
Mortgage Insurance Yes - 2% Upfront and .50% ongoing NO
Line of Credit Guaranteed Growth Rate YES Max 7 Years
Non Recourse YES YES
Property Types Single Family Residence, FHA Approved Condo, PUD, 2-4 Units Single Family Residence, FNMA Warrantable Condo, PUD, 2-4 Units
Special Approval for Condominium YES NO
Jumbo Reverse Mortgage Rates
Fixed Rate Payment Options: Lump Sum
Fixed Rate Adjustable Rate Lending Limit
9.375% (9.869% APR) 11.645% (6.625 Margin) $4,000,000
9.740% (10.268% APR) 11.770% (6.750 Margin) $4,000,000
9.990% (10.542% APR) 11.895% (6.875 Margin) $4,000,000
Jumbo APR Illustration: Assumes $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!
Interest rates and fees for any reverse mortgage should be compared when shopping around. 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 reverse mortgage but are reasonably sure that your home’s value is under the HECM lending limit of $1,149,825, take a closer look at traditional government-insured options 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.
Talking with your trusted friends and family while deciding on a reverse mortgage is also a good idea. Every individual borrower can have a very different situation. Those closest to you can offer more personalized advice before signing the dotted line.
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