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Understanding Proprietary Reverse Mortgages: How They Work, Pros & Cons

Last updated 04/30/2024 by

Abi Bus

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Fact checked by

Proprietary reverse mortgages, also known as jumbo reverse mortgages, offer senior homeowners a means to access their home equity through private lenders. Unlike federally insured Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages cater to homeowners with properties exceeding the FHA lending limit. This article delves into the workings, pros, and cons of proprietary reverse mortgages, comparing them with HECMs and offering guidance on making informed decisions.

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Understanding proprietary reverse mortgages

Proprietary reverse mortgages provide an alternative source of funding for seniors aged 62 and older who wish to tap into their home equity without selling their homes. Unlike HECMs, which are backed by the Federal Housing Administration (FHA), proprietary reverse mortgages are issued by private lenders and are not subject to FHA regulations. These loans are particularly attractive to homeowners with high-value properties that exceed the lending limits imposed by the FHA.


The functionality of proprietary reverse mortgages mirrors that of HECMs in many respects. Homeowners can access their home equity in various ways, including lump-sum payments, monthly annuities, or lines of credit. The amount available for withdrawal is based on factors such as the appraised value of the home, the age of the youngest borrower, and prevailing interest rates. Repayment is typically deferred until the homeowner sells the property, moves out permanently, or passes away. At that time, the loan balance, including accrued interest and fees, must be repaid, usually through the sale of the home.

Market dynamics

The market for proprietary reverse mortgages has evolved over the years, with periods of growth and contraction influenced by factors such as changes in housing market conditions, interest rates, and regulatory environment. After the financial crisis of 2008, many lenders withdrew from the proprietary reverse mortgage market, leading to a decline in availability. However, as home prices rebounded and investor confidence returned, some lenders began reintroducing proprietary reverse mortgage products to meet the needs of high-value homeowners.

Features and eligibility

Proprietary reverse mortgages typically have fewer eligibility requirements compared to HECMs. While HECMs require borrowers to undergo mandatory counseling sessions and adhere to strict financial assessment criteria, proprietary reverse mortgages may have more flexible qualification criteria established by the lender. However, borrowers should be aware that lenders may impose higher interest rates, fees, and lending limits compared to HECMs.

Proprietary reverse mortgage vs. HECM

Key differences

Proprietary Reverse Mortgage:
– Less stringent regulations
– Not insured by the FHA
– No mandatory counseling sessions
– Flexible lending limits determined by the lender
– Potential for higher fees and interest rates
Subject to strict FHA regulations
Federally insured
Mandatory counseling sessions required
Lending limit set by the FHA ($970,800 in 2022)
Generally lower fees and interest rates

Choosing the right option

The decision to opt for a proprietary reverse mortgage or a HECM depends on various factors, including the homeowner’s financial goals, property value, age, and tolerance for risk. Prospective borrowers should carefully compare interest rates, fees, and repayment terms from multiple lenders offering both types of loans. Additionally, exploring alternatives such as home equity loans, HELOCs, or downsizing should be considered.
Here is a list of the benefits and the drawbacks to consider.
  • Lack of FHA regulations allows for flexible terms
  • No mortgage insurance requirement
  • No mandatory counseling sessions
  • Potential for higher lending limits
  • May entail higher interest rates and fees
  • Limited lender availability
  • Greater susceptibility to scams

Frequently asked questions

What are the eligibility criteria for a proprietary reverse mortgage?

To qualify for a proprietary reverse mortgage, applicants typically must be aged 62 or older and own a property with substantial equity. While specific eligibility requirements vary by lender, borrowers may need to undergo a financial assessment to determine their ability to meet ongoing loan obligations, including property taxes and homeowners insurance.

How does the repayment process work for proprietary reverse mortgages?

The repayment process for a proprietary reverse mortgage is triggered when the borrower no longer occupies the property as their primary residence, either due to sale, relocation, or death. At that time, the loan balance, including accrued interest and fees, must be repaid. If the proceeds from the sale of the home exceed the loan balance, the remaining funds go to the borrower or their heirs.

What risks should I consider before opting for a proprietary reverse mortgage?

While proprietary reverse mortgages offer flexibility and access to larger loan amounts, they also come with risks. These may include higher interest rates and fees compared to HECMs, limited lender availability, and the potential for scams targeting vulnerable seniors. Borrowers should carefully review loan terms, seek independent financial advice, and explore alternative financing options before committing to a proprietary reverse mortgage.

How do proprietary reverse mortgages affect inheritance?

Proprietary reverse mortgages can impact inheritance by reducing the equity available in the home. When the borrower passes away or the home is sold, the loan balance, including accrued interest and fees, must be repaid. Depending on the remaining equity in the home, there may be less inheritance available for heirs.

Can I use a proprietary reverse mortgage to purchase a new home?

Yes, some proprietary reverse mortgage products allow borrowers to use the loan proceeds to purchase a new home. This option, known as a reverse mortgage for purchase, can be beneficial for seniors looking to downsize or relocate.

What happens if the value of my home decreases?

If the value of your home decreases after obtaining a proprietary reverse mortgage, it can affect the amount of equity available and the potential loan balance. However, proprietary reverse mortgages are non-recourse loans, meaning the borrower or their heirs are not personally liable for any shortfall if the loan balance exceeds the home’s value at the time of repayment.

Key takeaways

  • Proprietary reverse mortgages offer seniors an alternative source of funding by tapping into home equity.
  • Compared to HECMs, proprietary reverse mortgages provide more flexibility but may come with higher fees and interest rates.
  • Borrowers should carefully evaluate eligibility criteria, loan terms, and risks before choosing a reverse mortgage option.

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