Home-equity conversion mortgages (HECMs) are the most well known of the reverse mortgage products. These federally-insured loans allow homeowners who are at least 62 years old to tap into their home equity. It lets them pay for basic living expenses, healthcare costs, a home remodel, or anything else they want or need.
While HECMs represent most of the reverse-mortgage market, a small segment includes two other loan products: proprietary reverse mortgages and single-purpose reverse mortgages. For some homeowners, a proprietary reverse mortgage may make sense if they are seeking a loan larger than permitted by HECMs.
- Homeowners who want access to more money than a federally insured reverse mortgage allows, and whose homes are valued at more than the limit set by the government, are candidates for proprietary reverse mortgages
- Proprietary reverse mortgages provide larger loan amounts than permitted under home-equity conversion mortgage (HECM) programs.
- These special reverse mortgages, unlike HECMs, are not backed by the government and have few regulations.
- Private lenders offer proprietary reverse mortgages, which may have higher fees than HECMs.
What Is a Proprietary Reverse Mortgage?
Homeowners who want access to more money than a federally-insured reverse mortgage can supply, and whose homes are valued at more than the limit set by the government typically seek out proprietary reverse mortgages, which are offered and insured by private lenders. This type of reverse mortgage can provide a larger loan amount than what's permitted under HECM programs. HECMs are federally-backed and are offered by any lender approved by the Federal Housing Administration (FHA), so they must abide by federal limits. The maximum reverse mortgage loan limit allowed by the FHA in 2022 is $970,800.
Sometimes called jumbo reverse mortgages, proprietary reverse mortgages are limited only by the amount of risk the lender is willing to assume. Like other reverse mortgages, this type typically only allows you to tap into a portion of your home’s equity. As with HECMs, the loan amount is based on several factors, including your age and the home's appraised value.
Both HECMs and proprietary reverse mortgages permit borrowers to spend the funds in any manner they wish. The funds can be used for living expenses, travel, medical expenses, long-term care, or remodeling a home. The only reverse mortgage products that limit how funds are used are single-purpose reverse mortgages, which are typically used to help homeowners pay for property taxes and necessary home repairs.
Finally, unlike other reverse mortgages, propriety reverse mortgages may not offer different payment options, such as a monthly payment or line of credit. Instead, the funds are usually available only as a lump sum at closing.
Homeowners seeking proprietary reverse mortgages should be extra vigilant of potential scams as the safeguards that are built in to HECMs, like mortgage counseling, are not required.
Costs of Proprietary Reverse Mortgages
Proprietary reverse mortgages aren’t federally insured, so there are no upfront mortgage insurance (UFMI) fees or monthly mortgage insurance premiums (MIP) as there are for HECMs. Still, lenders tend to charge higher interest rates and lend lower amounts relative to a home's value to compensate for the lack of mortgage insurance.
As such, a proprietary reverse mortgage won't always be the best fit for a homeowner—even one with an expensive home. It is a good idea to compare interest rates and fees from several proprietary reverse mortgage lenders and HECM lenders. That will help you find the best deal based on your age and home value.
Who Is Eligible for a Proprietary Reverse Mortgage?
Proprietary reverse mortgages are offered by private lenders who set eligibility requirements, which can vary. Most people seeking these loans have homes with a high value or need to borrow more than the limits set by the FHA for federally-insured reverse mortgages. How much you can borrow depends on a number of factors, such as your age and the home's appraised value.
What Is a Single-Purpose Reverse Mortgage?
Single-purpose reverse mortgages provide homeowners who are 62 years and older access to part of their home’s equity to pay for a lender-approved expense—typically property taxes and home repairs. Most are offered by state and local government agencies and non-profit organizations.
When Do I Have to Repay a Reverse Mortgage?
In general, you must repay a reverse mortgage if you move out of the home, sell it, or die. The lender can also require that the loan be repaid if you don't pay your property taxes or stop taking care of the home.
The Bottom Line
If you’re an older homeowner, you may be able to tap into your home’s equity with a reverse mortgage to pay for living expenses, a home remodel, or any other expense. The most common type of reverse mortgage by far is the HECM. However, some homeowners may find that a proprietary reverse mortgage allows them to borrow more against their home equity. How much you can borrow depends on your age and the value of the property, as well as how much risk the lender is willing to take on.
If you are considering a HECM, you must receive counseling from a government-approved agency that will help you evaluate the pros and cons of reverse mortgages. While you may not be required to meet with a counselor if you’re seeking a proprietary reverse mortgage, it can still be helpful. It can help you learn more about how reverse mortgages work, including costs, tax implications, benefits, and downsides.