Types of Reverse Mortgages: HECM, Proprietary, Single Purpose
Explore the types of reverse mortgages: HECM, proprietary, and single purpose. Compare eligibility, costs, and benefits to find the right fit for your retirement.
By Ethan Young
A reverse mortgage is a loan available to homeowners aged 62 and older that allows them to convert part of their home equity into cash. Unlike a traditional forward mortgage, where you make monthly payments to a lender, a reverse mortgage pays you. The loan is repaid when the homeowner sells the home, moves out permanently, or passes away. Understanding the different types of reverse mortgages, HECM, proprietary, and single purpose, is essential for making an informed decision that aligns with your financial goals.
The three main categories serve different needs and have distinct eligibility rules, borrowing limits, and costs. The federally insured Home Equity Conversion Mortgage (HECM) is the most common and widely available option. Proprietary reverse mortgages, often called jumbo reverse mortgages, are private loans designed for higher-value homes that exceed HECM limits. Single purpose reverse mortgages are offered by some state and local government agencies for specific uses like paying property taxes or making home repairs. Each type carries unique advantages and trade-offs.
HECM: The Federally Insured Reverse Mortgage
The Home Equity Conversion Mortgage, or HECM, is backed by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). Because the federal government insures the loan, lenders are protected against losses, which encourages them to offer these loans to a broad range of eligible borrowers. The HECM program was created in 1989 and remains the most popular type of reverse mortgage in the country. For most homeowners exploring reverse mortgage options, the HECM is the starting point.
To qualify for a HECM, you must be at least 62 years old, own your home outright or have a significant amount of equity, and use the property as your primary residence. The home must meet FHA property standards, and you must participate in a consumer information session with a HUD-approved counselor. This counseling requirement ensures that borrowers fully understand the loan terms, costs, and obligations before proceeding. The counseling session is a safeguard designed to prevent seniors from making uninformed decisions.
The amount you can borrow through a HECM depends on several factors, including your age, the appraised value of your home, current interest rates, and the HECM lending limit, which HUD adjusts annually. Older borrowers generally qualify for higher loan amounts because the loan is expected to remain outstanding for a shorter period. You can receive your funds in several ways: a lump sum, monthly payments, a line of credit, or a combination of these options. Each disbursement method has different implications for how interest accrues and how much you can access over time.
HECM loans come with upfront and ongoing costs, including an origination fee, closing costs, mortgage insurance premiums, and servicing fees. The initial mortgage insurance premium (MIP) is typically 2 percent of the home's appraised value, and an annual MIP of 0.5 percent is charged on the outstanding loan balance. While these costs can be significant, the FHA insurance protects you and your heirs by guaranteeing that you will never owe more than the home's value when the loan becomes due, as long as you comply with the loan terms.
HECM Payment Options and Borrower Obligations
One of the most attractive features of a HECM is the flexibility it offers in how you receive your money. You can choose from the following payment structures:
- Lump sum: Receive all available funds at once, typically at a fixed interest rate.
- Monthly payments: Receive regular payments, either for a set term or for as long as you live in the home.
- Line of credit: Access funds as needed, with the unused portion growing over time.
- Combination: Mix a line of credit with monthly payments to suit your cash flow needs.
Regardless of which payment option you choose, you remain responsible for paying property taxes, homeowners insurance, and maintaining the home in good condition. Failure to meet these obligations can trigger a default, which may lead to foreclosure. Additionally, you must continue living in the home as your primary residence. If you move into a nursing facility for more than 12 consecutive months or sell the home, the loan becomes due and payable.
The HECM program also includes protections for non-borrowing spouses. Under certain conditions, a non-borrowing spouse may be able to remain in the home after the borrowing spouse passes away, provided the couple was married at the time of the loan origination and the spouse meets other requirements. This feature is particularly important for couples where one spouse is significantly younger and does not yet qualify for a reverse mortgage.
Proprietary Reverse Mortgages: Private-Label Options
Proprietary reverse mortgages, sometimes called jumbo reverse mortgages, are private loans offered by individual lenders without government insurance. These loans are designed for homeowners with high-value properties that exceed the HECM lending limit. Because they are not backed by the FHA, proprietary reverse mortgages can offer higher loan amounts, making them attractive to homeowners whose homes are worth well above the conforming limit. However, they are not as widely available as HECMs, and not all lenders offer them.
The eligibility requirements for proprietary reverse mortgages can vary by lender. Generally, borrowers must be at least 62 years old, though some lenders may set a higher minimum age. The home must be the borrower's primary residence, and the property must meet the lender's appraisal and condition standards. Unlike HECMs, proprietary loans do not require HUD counseling, although many lenders still encourage borrowers to seek independent financial advice before proceeding. The absence of a counseling requirement means borrowers should be especially diligent in reviewing the loan terms and costs.
One of the key advantages of a proprietary reverse mortgage is the potential for a larger payout. If your home is valued at $1.5 million and the HECM limit is $1,209,750 (the 2025 limit, which may change), a proprietary loan could allow you to access equity above that threshold. This can be a significant benefit for homeowners in high-cost real estate markets such as California, New York, or Hawaii. Proprietary loans may also offer different interest rate structures and fee arrangements compared to HECMs, giving borrowers more options to consider.
However, proprietary reverse mortgages come with their own set of risks. Because they are not federally insured, there is no government guarantee that the loan balance will not exceed the home's value. Some proprietary lenders include non-recourse provisions, meaning the borrower or their estate will not owe more than the home is worth, but this is not guaranteed across all products. Additionally, the costs associated with proprietary loans can be higher, and the terms may be less favorable than those offered by the HECM program. Borrowers should carefully compare offers from multiple lenders and review the loan documents thoroughly.
When a Proprietary Reverse Mortgage Makes Sense
A proprietary reverse mortgage may be appropriate if your home value exceeds the HECM limit and you want to access a larger portion of your equity. It may also be a good fit if you prefer a loan without the upfront mortgage insurance premium that HECMs require. However, if your home value is within the HECM limit, a federally insured HECM is often the more cost-effective choice due to its consumer protections and standardized terms.
Before choosing a proprietary reverse mortgage, consider the following:
- Compare interest rates and fees from at least two or three lenders.
- Confirm whether the loan includes a non-recourse clause.
- Review the repayment terms and what triggers the loan to become due.
- Understand how the loan may affect your eligibility for government benefits such as Medicaid or SSI.
Working with a knowledgeable financial advisor or housing counselor can help you evaluate whether a proprietary reverse mortgage aligns with your long-term financial plan. It is also important to consider how the loan will affect your heirs, as a larger loan balance may reduce the inheritance you leave behind.
Single Purpose Reverse Mortgages: Targeted Assistance
Single purpose reverse mortgages are the least common type of reverse mortgage and are typically offered by state or local government agencies, as well as some nonprofit organizations. As the name suggests, these loans are designed for a specific purpose, such as paying property taxes, covering home repairs, or making improvements to the property. They are not intended to provide general cash flow or to fund discretionary expenses. Because they are often subsidized or offered at low or no interest, they can be an attractive option for homeowners with limited financial resources.
Eligibility requirements for single purpose reverse mortgages vary widely by program and location. In general, borrowers must be at least 62 years old and meet income guidelines, as these programs are often targeted at low- to moderate-income homeowners. The property must be the borrower's primary residence, and the loan amount is usually limited to the cost of the specific purpose for which it is intended. For example, if you need $15,000 to repair a leaking roof, the loan amount may be capped at that figure. Some programs may also have maximum income or asset limits to ensure that assistance goes to those who need it most.
One of the main advantages of single purpose reverse mortgages is their low cost. Many programs charge no origination fees, and interest rates may be below market or even zero. Repayment is typically deferred until the homeowner sells the home, moves out, or passes away, similar to other reverse mortgage products. However, because these loans are offered by government agencies and nonprofits, they are not available everywhere. Availability depends on where you live and whether your local or state government offers such a program. Some states have robust programs, while others have none.
Another limitation of single purpose reverse mortgages is the restricted use of funds. You cannot use the money for everyday expenses, travel, or gifts to family members. The funds must be used for the specific purpose outlined in the loan agreement, and the lender or agency may require documentation to verify that the money was used appropriately. This restriction makes single purpose loans less flexible than HECMs or proprietary reverse mortgages, but it also ensures that the funds are directed toward preserving the home or addressing a pressing financial need.
How to Find Single Purpose Reverse Mortgage Programs
If you are interested in a single purpose reverse mortgage, start by contacting your state or local housing finance agency. These agencies can provide information about available programs, eligibility requirements, and how to apply. You can also check with your local Area Agency on Aging, which often has resources for seniors seeking financial assistance. Nonprofit organizations such as Rebuilding Together or Habitat for Humanity may also offer home repair programs that function similarly to single purpose reverse mortgages.
Because single purpose programs are limited in scope and availability, they may not be a viable option for everyone. If you do not qualify or if no program exists in your area, a HECM or proprietary reverse mortgage may be a better alternative. Regardless of which type you choose, it is important to compare the costs, benefits, and risks of each option before making a decision. For homeowners who want to explore their options further, resources like ExpressMortgageQuotes provide educational content and tools to help you understand reverse mortgage products and connect with lenders who offer them.
Comparing the Three Types of Reverse Mortgages
To summarize, the three types of reverse mortgages, HECM, proprietary, and single purpose, differ in their backing, eligibility, loan limits, and intended use. The table below provides a side-by-side comparison of key features. Note that specific terms and availability may vary by lender and location.
- HECM: Federally insured, widely available, lending limit set by HUD, requires counseling, offers various payment options, includes non-recourse protection and non-borrowing spouse provisions.
- Proprietary: Privately funded, available through select lenders, no set lending limit (can exceed HECM cap), counseling not always required, may have higher costs, non-recourse protection varies.
- Single purpose: Offered by government or nonprofit agencies, limited availability, restricted to specific uses, often low or no cost, income limits may apply, repayment deferred until home is sold or borrower moves.
When deciding which type of reverse mortgage is right for you, consider your financial goals, the value of your home, your age, and your long-term plans for staying in the home. If you need a large amount of cash and your home is highly valued, a proprietary reverse mortgage may be appropriate. If you want the security of a federally insured loan with standardized terms, a HECM is likely your best bet. If you have a specific, limited need such as paying property taxes or repairing your home, a single purpose reverse mortgage could be the most cost-effective solution.
It is also important to consider how a reverse mortgage fits into your overall retirement strategy. While these loans can provide valuable cash flow, they also reduce the equity you have in your home and can impact your estate planning. Discussing your options with a financial advisor, attorney, or housing counselor can help you make a well-informed decision that protects your interests and those of your heirs.
Finally, be cautious of any lender or salesperson who pressures you to take out a reverse mortgage quickly or who discourages you from seeking independent advice. Reputable lenders will encourage you to take your time, ask questions, and consult with trusted advisors. The more you understand about the types of reverse mortgages available, the better equipped you will be to choose the one that best meets your needs.