What Is a Proprietary Reverse Mortgage?
Explore proprietary reverse mortgages. Understand how these private equity loans work and their key differences from government-backed options.
A reverse mortgage allows homeowners to convert a portion of their home equity into cash. This financial tool is designed for older adults, providing a way to access funds without selling their home or incurring new monthly mortgage payments. The loan is repaid when the last borrower permanently leaves the home, whether due to sale, death, or relocation.
Defining Proprietary Reverse Mortgages
A proprietary reverse mortgage is a private loan product offered by non-governmental lenders, distinct from government-insured options. It allows homeowners to access a portion of their home equity as cash. These loans are not insured by the federal government. They provide financial liquidity to homeowners who wish to remain in their homes.
The loan balance grows over time as interest accrues on the borrowed amount, and any associated fees are added to the principal. Lenders offering these products typically establish their own terms and conditions, which can vary significantly. This type of reverse mortgage is designed to cater to a broader range of property values and financial situations. The funds received are generally tax-free, as they are considered loan proceeds rather than income.
How Proprietary Differs from HECM
Proprietary reverse mortgages differ significantly from the Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage insured by the Federal Housing Administration (FHA). A primary distinction is in the lenders; proprietary loans are offered by private financial institutions, while FHA-approved lenders provide HECMs. This difference means proprietary loans do not carry the FHA insurance premium that HECMs require.
Loan limits are another key difference. HECM loans are subject to a maximum claim amount set annually by the FHA, which for 2025 is $1,149,825. Proprietary reverse mortgages, conversely, are not bound by these federal limits and can often provide higher loan amounts, particularly for homes with substantial value exceeding the HECM cap. Proprietary loans may also accommodate a broader array of property types, sometimes including co-ops or certain luxury properties that might not meet HECM eligibility criteria. While HECMs mandate counseling by an FHA-approved counselor, proprietary loans may have varying counseling requirements based on the lender.
Who Qualifies and Property Types
Eligibility for a proprietary reverse mortgage typically requires the youngest borrower to be at least 60 years old, though some lenders may set the minimum age at 62 or higher. Borrowers must possess significant home equity, as the loan amount is based on a percentage of the home’s appraised value, the borrower’s age, and current interest rates. The home must also serve as the borrower’s primary residence.
Eligible property types commonly include single-family homes, condominiums, and townhouses. Lenders conduct a financial assessment to ensure the borrower can meet ongoing obligations, such as paying property taxes and homeowners insurance. While credit history is reviewed, the focus is on consistent payment of property-related expenses rather than a traditional credit score.
Understanding Loan Operations
Once a proprietary reverse mortgage is established, funds can be disbursed to the borrower in several ways. Common options include a lump sum at closing, a line of credit, scheduled monthly payments, or a combination. The chosen disbursement method can influence the amount of interest that accrues over time.
Proprietary reverse mortgages are non-recourse, meaning the borrower or their heirs will not owe more than the home’s value when the loan becomes due, regardless of the outstanding loan balance. Repayment of the loan is typically triggered by specific events: the sale of the home, the last borrower permanently moving out of the residence, or the death of the last surviving borrower.
Failure to meet ongoing loan obligations can also trigger repayment. This includes not paying property taxes, homeowners insurance, or not maintaining the home. The lender services the loan by sending periodic statements detailing the growing loan balance and accrued interest.