The most well-known reverse mortgage product is the home equity conversion mortgage (HECM). These federally guaranteed loans enable homeowners who are 62 years or older to access the equity in their homes. It enables individuals to pay for essential living expenditures, medical bills, house renovations, and anything else they want or need.
The majority of the reverse mortgage industry is made up of HECMs, although a tiny portion also comprises proprietary reverse mortgages and single-purpose reverse mortgages. If a homeowner needs a loan that is greater than what is allowed under HECMs, a private reverse mortgage can make sense for them.
- Proprietary reverse mortgages are an option for homeowners who need access to more money than a federally insured reverse mortgage provides and whose houses are worth more than the minimum amount required by the federal government to qualify for a reverse mortgage.
- Larger loan amounts than those allowed by home equity conversion mortgage (HECM) schemes are offered by proprietary reverse mortgages.
- Unlike HECMs, these unique reverse mortgages are not guaranteed by the government and are subject to fewer rules.
- Proprietary reverse mortgages are offered by private lenders; these mortgages may have greater costs than HECMs.
What Is a Proprietary Reverse Mortgage?
Proprietary reverse mortgages are often sought after by homeowners who need access to more money than a federally insured reverse mortgage can provide and whose houses are worth more than the threshold established by the U.S. government to qualify for a federally insured reverse mortgage. Private lenders provide and guarantee this kind of reverse mortgage, which may give a bigger loan amount than what is allowed under HECM programs. HECMs must adhere to federal restrictions since they are government backed and may be obtained from any lender that has been recognized by the Federal Housing Administration (FHA). The FHA will only approve reverse mortgage loans up to $970,800 in 2022.
Proprietary reverse mortgages, sometimes known as jumbo reverse mortgages, are only limited by how much risk the lender is prepared to take. Similar to other reverse mortgages, this one normally only lets you access a part of the value in your house. The loan amount is determined by a number of criteria, including your age and the home’s assessed worth, much like with HECMs.
Both proprietary reverse mortgages and HECMs let borrowers to use the money anyway they see fit. The money might be used for long-term care, vacation, living expenditures, medical costs, or home improvements. Single-purpose reverse mortgages, which are often used to assist homeowners with paying for real estate taxes and required house repairs, are the only reverse mortgage products that restrict how funds are utilized.
Finally, proprietary reverse mortgages may not provide additional payment choices, such as a monthly payment or a line of credit, in contrast to other reverse mortgages. Instead, the money is often only made accessible in one large amount at closing.
Proprietary reverse mortgage applicants should be especially watchful about fraud. Proprietary reverse mortgages are exempt from the protections included in HECMs, such as mortgage counseling.
Costs of Proprietary Reverse Mortgages
The upfront mortgage insurance (UFMI) costs and monthly mortgage insurance premiums (MIP) associated with HECMs are not applicable to proprietary reverse mortgages since they are not federally insured. Nevertheless, to make up for the absence of mortgage insurance, lenders often impose higher interest rates and provide smaller loans in comparison to the value of a house.
As a result, even a homeowner with a pricey house may not necessarily be a good candidate for a proprietary reverse mortgage. Comparing interest rates and costs charged by various HECM and proprietary reverse mortgage lenders is a smart idea. Based on your age and the worth of your property, that will assist you discover the best offer.
Who is eligible for a proprietary reverse mortgage?
Private lenders who provide proprietary reverse mortgages choose the varying qualifying restrictions. The majority of borrowers either require more money than what the Federal Housing Administration (FHA) allows for reverse mortgages that are federally insured or have high-value houses. Your ability to borrow money is influenced by a variety of variables, including your age and the home’s assessed worth.
What is a single-purpose reverse mortgage?
Reverse mortgages with a single purpose provide homeowners who are 62 years of age or older access to a portion of their home’s equity to pay for an item that the lender has authorized, usually property taxes and home maintenance. The majority are provided by nonprofit organizations and state and municipal governments.
When do I have to repay a reverse mortgage?
In general, you are required to pay back a reverse mortgage if you sell your house, move out, or pass away. If you cease maintaining the house or don’t pay your property taxes, the lender may additionally demand repayment of the loan.
The Bottom Line
If you’re an older homeowner, you may be able to use a reverse mortgage to access the equity in your house to cover living costs, home improvements, or any other obligation. The most frequent kind of reverse mortgage by far is the HECM. Some homeowners, however, may discover that a private reverse mortgage enables them to borrow more against the value of their property. Your age, the value of the property, and the level of risk the lender is prepared to assume all have an impact on how much you may borrow.
In order to assess the benefits and drawbacks of reverse mortgages, you must undergo counseling from a government-approved organization if you are thinking about getting a HECM. If you’re looking for a proprietary reverse mortgage, you may not be obliged to meet with a counselor, but it can still be beneficial. It may assist you in learning more about reverse mortgages and their advantages, disadvantages, expenses, and tax ramifications.
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