Proprietary Reverse Mortgages Offer More Flexibility, But More Risks
The vast majority of reverse mortgages are classified as Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration (FHA). However, a small portion of reverse mortgages on the market are offered by private lenders, and are not insured or closely regulated by the FHA. In general, proprietary reverse mortgage loans can offer significantly more flexibility to borrowers, but also don’t have many of the protections that naturally come with HECMs. Despite that, certain federal laws do apply to proprietary reverse mortgages, including the fact that borrowers must be at least 62 years old to qualify.
What are the Differences Between HECMs and Proprietary Reverse Mortgages?
One of the biggest differences between HECMs and proprietary reverse mortgages is the fact that proprietary reverse mortgages are not beholden to the FHA lending limits. Right now, HECMs are limited to a maximum of $679,650 or the home’s appraised value, whichever is less. In contrast, proprietary reverse mortgages are only limited to the maximum amount that the borrower is willing to lend. And, when it comes to jumbo reverse mortgages, that number could easily be several million dollars.
Also, unlike HECMs, proprietary reverse mortgages usually do not require borrowers to pay any form of mortgage insurance. So, if you get a reverse mortgage, you won’t have to pay an upfront mortgage insurance premium (UMIP), or a regular mortgage insurance premium (MIP). However, proprietary reverse mortgages may have their own fees, so you won’t necessarily be saving money by getting one. In fact, proprietary reverse mortgages typically have higher interest rates than HECMs, so you’ll usually end up paying more for your loan.
Proprietary Reverse Mortgages and Non-Borrowing Spouses
Since mid-2014, HECMs have carried certain protections for non-borrowing spouses, Specifically, non-borrowing spouse are permitted to stay in a home after the borrowing spouse has passed away or moved to a nursing home, as long as they get certified as an eligible spouse before the borrower has passed away. They also will have to get re-certified each year afterward, as long as they want to continue staying in the home. In addition, non-borrowing spouses need to uphold the general rules of the reverse mortgage, including paying property taxes, homeowners insurance, and maintaining the property.
Jumbo Reverse Mortgages are The Most Popular Form of Proprietary Reverse Mortgages
Earlier in this article, we mentioned that certain proprietary reverse mortgage lenders offer jumbo reverse mortgages. In fact, most proprietary reverse mortgages are actually jumbo reverse mortgages. Jumbo reverse mortgages are usually only available to borrowers who have homes worth more than $1 million, but recent market changes mean that these loans may be available for borrowers with homes valued at as little as $850,000. Right now, only two lenders offer jumbo reverse mortgage products to borrowers: American Advisors Group and Finance of America Reverse.