Understanding Your Reverse Mortgage Options
When exploring reverse mortgages, you'll encounter two main types: Home Equity Conversion Mortgages (HECMs) and proprietary reverse mortgages. Each has distinct features, benefits, and considerations that may make one more suitable for your situation than the other.
What Is a HECM?
The Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage, accounting for approximately 90% of all reverse mortgages. HECMs are insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).
Key Features of HECMs:
- FHA Insurance: Provides protection for both borrowers and lenders
- Lending Limit: Subject to FHA maximum claim amount (currently $1,149,825 in 2024)
- Required Counseling: Mandatory HUD-approved counseling before closing
- Non-Recourse Protection: You'll never owe more than the home's value
- Multiple Payment Options: Lump sum, monthly payments, line of credit, or combination
- Regulated Costs: Fees are capped and regulated by HUD
What Is a Proprietary Reverse Mortgage?
Proprietary reverse mortgages, sometimes called "jumbo" reverse mortgages, are private loans offered by individual lenders. They are not federally insured and are designed primarily for homeowners with high-value properties.
Key Features of Proprietary Reverse Mortgages:
- Higher Loan Limits: Can exceed FHA limits, ideal for high-value homes
- No FHA Insurance Premium: May have lower upfront costs in some cases
- Fewer Restrictions: May have more flexible property requirements
- Lender-Specific Terms: Vary significantly between lenders
- Limited Availability: Not as widely offered as HECMs
Side-by-Side Comparison
| Feature | HECM | Proprietary |
|---|---|---|
| Federal Insurance | Yes (FHA) | No |
| Loan Limit | $1,149,825 (2024) | $4 million+ |
| Age Requirement | 62+ | Varies (often 60+) |
| Counseling Required | Yes (HUD-approved) | Varies by lender |
| MIP (Mortgage Insurance) | Required | Not required |
| Non-Recourse | Yes (guaranteed) | Usually yes |
When to Choose a HECM
A HECM may be the better choice if:
- Your home value is at or below the FHA limit
- You want the security of federal insurance
- You prefer regulated fees and consumer protections
- You want access to multiple payment options
- You value the mandatory counseling requirement
When to Choose a Proprietary Reverse Mortgage
A proprietary reverse mortgage may be the better choice if:
- Your home value significantly exceeds the FHA limit
- You want to access more equity than a HECM allows
- You're slightly younger than 62 (some proprietary loans accept 60+)
- Your property doesn't meet FHA requirements
Important Considerations
Before choosing either option, consider these factors:
- Total Costs: Compare origination fees, interest rates, and closing costs from multiple lenders
- Long-Term Plans: How long do you plan to stay in the home?
- Heirs' Interests: How will this affect your estate?
- Other Options: Have you explored alternatives like HELOCs or downsizing?
Making Your Decision
Both HECM and proprietary reverse mortgages can be valuable financial tools for the right borrower. The best choice depends on your home value, financial goals, and personal circumstances. We recommend consulting with a HUD-approved counselor and comparing offers from multiple lenders before making your decision.
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