Is a Proprietary Reverse Mortgage Right for You?

A Proprietary Reverse Mortgage is a type of home loan that allows homeowners—typically aged 62 or older—to convert part of their home equity into cash. Unlike traditional reverse mortgages insured by the government (such as Home Equity Conversion Mortgages, or HECMs), proprietary reverse mortgage are backed by private lenders. These products are especially beneficial for individuals with high-value homes who may exceed the federal lending limits of HECMs.

While traditional reverse mortgages have strict lending caps set by the Federal Housing Administration (FHA), proprietary reverse mortgages offer more flexibility and larger loan amounts. This makes them an attractive option for affluent homeowners or those with unique financial needs.

How Does a Proprietary Reverse Mortgage Work?

A Proprietary Reverse Mortgage works similarly to standard reverse mortgages, but with some key differences. The borrower must still meet eligibility criteria, such as age and equity requirements, but the main appeal lies in the loan amount and flexible payment options.

The lender determines the loan amount based on the home’s appraised value, the borrower’s age, and current interest rates. Unlike traditional loans, you don’t make monthly mortgage payments. Instead, the loan balance grows over time and is repaid when the homeowner sells the home, moves out, or passes away.

For those interested in estimating their potential loan amount, tools like a reverse mortgage purchase calculator can be helpful. These online calculators provide rough estimates based on your home’s value, your age, and other financial factors, making it easier to determine if a proprietary reverse mortgage is right for you.

Who Should Consider a Proprietary Reverse Mortgage?

Not every homeowner will benefit from a Proprietary Reverse Mortgage, but certain situations make it a compelling option:

• High-Value Homes: If your home is worth more than the FHA lending limit (currently $1,149,825 in 2024), a proprietary reverse mortgage may allow you to borrow significantly more.
• Desire for a Lump Sum: Proprietary products often provide larger lump-sum payments than traditional HECMs.
• Luxury Property Owners: If your home has unique features or is located in a prime real estate market, proprietary lenders may be more accommodating in appraisals.
• Younger Spouses: Some private lenders offer more flexibility for households with a younger spouse under age 62.

Using a reverse mortgage purchase calculator can help you compare the financial impact of different reverse mortgage options based on your goals and financial profile.

What Are the Key Benefits of a Proprietary Reverse Mortgage?

There are several advantages to choosing a proprietary reverse mortgage over a traditional HECM:

1. Higher Loan Limits

Since private lenders are not bound by FHA restrictions, they can offer loans above federal limits—sometimes up to several million dollars depending on the property’s value.

2. No Mortgage Insurance Premium

Unlike government-backed HECMs, proprietary reverse mortgages typically do not require you to pay an upfront or annual mortgage insurance premium, reducing your overall costs.

3. Larger Payout Options

You may be able to receive a larger lump sum or line of credit, providing greater access to cash when needed.

4. Flexible Use of Funds

Borrowers can use the funds for any purpose—home renovations, travel, debt repayment, medical bills, or to supplement retirement income.

5. Simplified Application Process

Since these are private loans, lenders may have streamlined processes and more personalized customer service compared to federally regulated programs.

Are There Any Drawbacks to Proprietary Reverse Mortgages?

While a Proprietary Reverse Mortgage has unique benefits, it also comes with potential downsides:

• Higher Interest Rates: Private loans may carry higher interest rates compared to HECMs, which can increase the long-term cost of borrowing.
• Less Regulation: Because they are not subject to the same federal oversight, proprietary reverse mortgages may offer fewer consumer protections.
• Limited Availability: Not all lenders offer these products, and availability may vary by state.
• Risk of Decreased Home Equity: As with all reverse mortgages, the loan balance grows over time, which can erode the remaining equity in your home.
• Impact on Inheritance: Heirs may have limited options for keeping the home unless they can repay the loan balance in full.

It’s important to consult with a financial advisor and use tools like a reverse mortgage purchase calculator to weigh the long-term impact on your finances and estate.

How Do You Apply for a Proprietary Reverse Mortgage?

Applying for a proprietary reverse mortgage generally involves the following steps:

1. Initial Consultation: Speak with a reverse mortgage specialist who offers proprietary products.
2. Eligibility Review: Provide details about your age, home value, and existing mortgage balance.
3. Estimate Loan Amount: Use a reverse mortgage purchase calculator to get an idea of the funds you may receive.
4. Appraisal and Underwriting: The lender will appraise your home and review your financial situation.
5. Loan Closing: After approval, you sign the necessary paperwork, and funds are disbursed according to the agreed-upon method (lump sum, line of credit, or monthly payments).

Because proprietary products differ by lender, always compare multiple offers to find the best rates and terms.

How Does a Proprietary Reverse Mortgage Compare to a HECM?

Here’s a quick side-by-side comparison:

For those with high-value homes and more complex financial goals, proprietary products can offer the flexibility that HECMs cannot.

Is a Proprietary Reverse Mortgage Right for You?

Deciding whether a Proprietary Reverse Mortgage is right for you depends on your unique financial situation, property value, and retirement goals. Ask yourself:

• Is your home worth significantly more than the FHA limit?
• Do you need a large lump sum or line of credit?
• Can you handle a less regulated loan environment?
• Are you comfortable reducing your home equity over time?
• Have you used a reverse mortgage purchase calculator to evaluate your options?

If the answers align with your financial strategy, a proprietary reverse mortgage might be the solution you need to unlock the value of your home without selling it.

Final Thoughts

A Proprietary Reverse Mortgage can be an excellent tool for homeowners with valuable properties and a need for flexible, large-scale funding. It offers advantages like higher loan limits, no mortgage insurance, and larger payouts. However, it also comes with risks like fewer regulations and potentially higher costs.

Before proceeding, take the time to consult with a certified reverse mortgage advisor, explore multiple lenders, and use a reverse mortgage purchase calculator to understand how much you can borrow. By doing your homework, you can make a confident decision about whether a proprietary reverse mortgage is right for your retirement goals.