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Differences Between a Proprietary Reverse Mortgage and an FHA-insured Reverse Mortgage

For almost 50 years FHA-insured Home equity conversion mortgages (HECMs) have helped homeowners who are at least 62 years old ease their financial burden in their retirement years. Borrowers can utilize funds from their home equity to cover medical costs, buy the home they really want or need, and pay for necessary repair and remodeling projects to make their home more suitable for their safety and mobility, just to name a few. Because of the safeguards and popularly of HECMs, most borrowers who seek a reverse mortgage opt for this federally-insure loan. But there is another lesser-used reverse mortgage on the market, called a proprietary reverse mortgage, also called a jumbo reverse mortgage, that may allow certain homeowners to borrow more.

The more equity you have in your home, the more money you can borrow. But the HECM is limited to $726,525, or the appraised value of your home, whichever is less. Proprietary reverse mortgages can offer larger loan amounts than allowable under FHA guidelines because they aren’t limited to the same criteria that the HECM is – including home value.

Proprietary reverse mortgages may be attractive to homeowners whose properties are not eligible for FHA financing, or if their home value exceeds one million dollars.

At a glance, here are some similarities and differences…

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Similarities & Differences Between Proprietary and FHA-insured Reverse Mortgages

Similarities
  • Both HECMs and proprietary reverse mortgages allow borrowers to spend the funds any way they want.
  • Both HECMs and proprietary reverse mortgages allow borrowers to utilize a portion of their home’s equity, not its entirety.
Differences
  • Proprietary reverse mortgages are insured by private companies.
  • HECM reverse mortgages are FHA-insured and closely regulated by the federal government.
  • Proprietary reverse mortgages can be in the millions.
  • HECM reverse mortgages are capped at $726,525.
  • Propriety reverse mortgage funds are typically paid in a lump sum at closing.
  • HECM reverse mortgage funds may be available as a monthly payment, line of credit, or lump sum.
  • Proprietary reverse mortgages don’t have an upfront or monthly mortgage insurance premium.
  • Proprietary reverse mortgage lenders may charge higher interest rates and offer lower loan amounts to offset the absence of mortgage insurance.
  • Proprietary reverse mortgages don’t require borrowers to get mortgage counseling.
  • HECM reverse mortgages do require mortgage counseling.

While there are advantages to both types of reverse mortgage loans, certain homeowners may find one is a better fit than another, depending upon their individual situations. To learn more about an HECM or a proprietary reverse mortgage, and which loan might be best for you, speak with one of our a Certified Reverse Mortgage Professionals.

Learn more about how people are using home equity conversion mortgages for purchasing homes:

Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.