Reverse Mortgage

Are There Different Types of Reverse Mortgages?

The three basic types of reverse mortgage are:

  1. Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
  2. Federally insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U.S. Department of Housing and Urban Development (HUD); and
  3. Proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have lower costs. However, they are not available everywhere, and they can be used only for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements to the home that are necessary (e.g., to accommodate a disability), or to pay property taxes or special assessments. In most cases, you can qualify for these loans only if your income is low or moderate and/or if your home is of limited value.

HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans. But owners of higher-valued homes may get bigger loan advances from a proprietary reverse mortgage, rather than a HECM.

HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Generally speaking, the eligibility requirements, payment options, and repayment obligations for proprietary reverse mortgages are similar to those for HECMs. Because they are not subject to the same regulations, however, proprietary reverse mortgages can often provide higher principal limits than those possible under the HECM program. If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. Keep in mind that proprietary mortgages are not federally insured, and they often are more costly to obtain and service than HECMs.

No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable.

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