You may not know this, but there are three types of reverse mortgages. A proprietary reverse mortgage is one type of reverse mortgage that allows you to access the equity inside your house and use it for anything you want. Because the property is not insured by the government, you can obtain more cash than any other type of reverse mortgage. However, interest rates may be higher and there may be more risks involved with this type of loan.
A proprietary reverse mortgage is a private loan that allows seniors 55 and over to access the equity in your home and use it for anything they want. As a private loan, it is not insured by the Federal Housing Administration (FHA) and therefore may come with higher interest rates and more risks than another type of reverse mortgage. On the plus side, this type of reverse mortgage allows seniors to obtain more cash than with a conventional reverse mortgage.
Key Takeaways
- Proprietary reverse mortgages are private loans that you can obtain through proprietary reverse mortgage lenders or brokers, whereas HECMs is a government-insured loans.
- A jumbo reverse mortgage is a type of proprietary reverse mortgage. As the name implies, these are loans designed for seniors who have more than sufficient equity in their homes.
- There are three types of reverse mortgages: single-purpose, federally insured, and proprietary.
What is a proprietary reverse mortgage?
Proprietary reverse mortgages are also known as jumbo reverse mortgages. In this article, I will explain more about proprietary reverse mortgages, the pros and cons, and whether or not you should consider this type of reverse mortgage.
Proprietary Reverse Mortgage vs. HECM
While a HECM reverse mortgage is insured by the federal government, a proprietary reverse mortgage is private. Proprietary reverse mortgages are private loans that you can obtain through proprietary reverse mortgage lenders or brokers, whereas HECMs is a government-insured loans.
With a proprietary reverse mortgage, the responsibility will be entirely on you to make sure the loan is repaid. In addition, without FHA insurance, the government does not have a hand in your loan. Proprietary reverse mortgages also do not usually qualify for HECM assistance programs such as the Reverse Mortgage Forgiveness Program, or HECM Saver.
However, despite some risks, there are also some key benefits to consider:
1) Higher loan limit, often allowing seniors to obtain more cash than with a conventional or HECM reverse mortgage. The current loan limit for a reverse mortgage in 2021 is $822,375. Proprietary allows you to obtain much larger than this.
2) People obtaining proprietary reverse mortgages do not require borrowers to go through reverse mortgage counseling. As a result, the process can be more streamlined than conventional reverse mortgages.
3) Lower upfront fees. There is no mortgage insurance required and no FHA fees on a proprietary reverse mortgage loan.
Who can get a Proprietary Reverse Mortgage?
To qualify, you must be at least 55 years old, have sufficient equity in the property, and meet financial requirements. In addition, if the value of your home is over $822,375 and you want to get the most loan amount, a proprietary reverse mortgage may be your best option. Proprietary reverse mortgages can also help seniors avoid the additional costs of taxes and insurance that usually come with other types of loans or home equity lines of credit (HELOC).
How Do Proprietary Reverse Mortgages Work?
Despite not having FHA insurance, proprietary reverse mortgages work very similarly to that an FHA (Federal Housing Administration) reverse mortgage. Proprietary reverse mortgages are designed to help seniors stay in their homes once they retire by giving them access to cash while staying in the house. With this type of loan, you can receive money either as a lump sum or in monthly payments.
The common requirements to obtain the loan include being at least 55, having sufficient equity in your home, staying current on property taxes and homeowner insurance, having the capability to pay for reverse mortgage costs, and being the primary resident of your home. Proprietary reverse mortgages are not available in all states, so make sure you check with the lender to see if it is available where you live.
What is a Jumbo Reverse Mortgage?
A jumbo reverse mortgage is a type of proprietary reverse mortgage. As the name implies, these are loans designed for seniors who have more than sufficient equity in their homes. With jumbo reverse mortgages, seniors can get access to more equity than with a conventional or HECM reverse mortgage.
The Pros And Cons Of Proprietary Reverse Mortgages
As with any type of loan, it is important to consider all the pros and cons before moving forward with a loan. Here are some of the main advantages & disadvantages:
The Pros of Proprietary Reverse Mortgages
- Larger loan limits – Proprietary reverse mortgages allow seniors to obtain more cash in the form of a loan since it’s not backed by the Federal Housing Administration (FHA).
- No mortgage insurance cost – You have less upfront cost
- No monthly mortgage payments – You’ve not required to pay back the loan until you sell your house or pass away
- Use the funds for anything – You can use the loan proceeds for anything, including paying for living expenses or bills, consolidating debt, investing in a new business venture, taking a vacation, etc.
The Cons of Proprietary Reverse Mortgages
- Fewer protections – Proprietary reverse mortgages are less regulated than conventional or HECM reverse mortgages.
- Interest rate – Proprietary reverse mortgages usually have higher interest rates than conventional or opens in a new windowHECM reverse mortgages.
- Limited distribution options – Unlike a HECM reverse mortgage, you’re only option is to obtain a lump payment from your loan.
Should I Apply For A Proprietary Reverse Mortgage?
If you’re considering applying, I recommend that you speak with an experienced reverse mortgage consultant to see if it’s the best solution for you. Proprietary reverse mortgages are not right for everyone. Also, because these loans do not come with FHA insurance, they usually come with higher interest rates and costs than other types of loans or HELOCs (home equity lines of credit). However, as always, it’s important that you do your own research and carefully consider all of the factors before applying.
Proprietary Reverse Mortgage FAQs
What are the 3 types of reverse mortgages?
There are three types of reverse mortgages: single-purpose, federally insured, and proprietary.
Can you get a proprietary reverse mortgage on a condo?
Getting a reverse mortgage on a condo is actually easier with a proprietary reverse mortgage since you don’t need to meet any FHA requirements. If the condo is your primary residence, you must be at least 55 years of age. Your lender may also have other requirements.
When is a proprietary reverse mortgage better than a HECM?
If the home appraises for more than $822,375 or a borrower desires a loan with lower closing costs, a proprietary reverse mortgage may be a better option than a HECM (Home Equity Conversion Mortgages).
Is there mortgage insurance on a proprietary reverse mortgage?
No monthly mortgage insurance premiums are due for these loans since they are not federally insured.
Do proprietary reverse mortgages have higher closing costs than a HECM?
Due to the absence of mortgage insurance, closing costs are actually lower than conventional reverse mortgage loans.
Do proprietary reverse mortgages have higher interest rates than a HECM?
HECM loans have a rate of 3 to 5%, while proprietary loans can be as high as 7%.
The Bottom Line
A proprietary reverse mortgage is one of three types of reverse mortgages. It allows you to access your home equity and use the money for anything you want. Because the property is not federally insured, you can obtain more cash than any other type of reverse mortgage loan available on today’s market.
However, interest rates may be higher and there may be more risks involved with this type of loan that some people are not aware of when they apply for it (and/or do their research). If your goal is supplementing your investment income or other needs, then getting this type of loan could very well work in your favor if done correctly.
The best way to get started is to speak with an experienced reverse mortgage consultant and see if it’s the best solution for you.
