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When seniors consider tapping into their home’s equity through a reverse mortgage, they often encounter two primary options: Home Equity Conversion Mortgages (HECMs) and proprietary reverse mortgage programs. Both can offer financial relief during retirement, but they have distinct differences. Let’s explore the key distinctions between these two types of reverse mortgage programs.

1. Government-Backed vs. Private Loans

HECM: HECM reverse mortgages are backed by the Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD). This government support ensures certain consumer protections and standardized loan features.

Proprietary: Proprietary reverse mortgage programs, on the other hand, are offered by private financial institutions. These programs are not government-insured and can vary widely in terms and conditions.

2. Loan Limits

HECM: HECM reverse mortgages have maximum lending limits set by the FHA, which can change annually. To determine the loan amount, consider factors like the appraised home value, age of the youngest borrower, and prevailing interest rates.

Proprietary: Proprietary reverse mortgages often have higher lending limits compared to HECMs. They may allow borrowers to access a larger portion of their home equity, making them suitable for those with high-value homes.

3. Fees and Costs

HECM: HECM reverse mortgages typically have capped origination fees, mortgage insurance premiums, and other costs, which are regulated by the FHA. This provides borrowers with cost predictability and protection against excessive fees.

Proprietary: Proprietary reverse mortgage programs may have more flexible fee structures. However, borrowers should carefully review all associated fees and costs, as they can vary between lenders.

4. Eligibility Requirements

HECM: HECM reverse mortgages have strict eligibility criteria, including age requirements, homeownership status, and property types. Borrowers must complete mandatory counseling sessions to ensure they understand the program’s implications.

Proprietary: Proprietary programs may have more lenient eligibility requirements, making them accessible to a broader range of seniors. Some may offer reverse mortgages for non-FHA-approved condominiums.

5. Interest Rate Options

HECM: HECMs typically offer adjustable interest rates, although fixed-rate options are available. The interest rate is influenced by market conditions and can change over time.

Proprietary: Proprietary reverse mortgage programs may offer both adjustable and fixed interest rate options. Borrowers can choose the one that best suits their financial goals.