HECM vs. Proprietary Reverse Mortgages: Understanding The Differences

When exploring reverse mortgages, you’ll encounter two main types: Home Equity Conversion Mortgages (HECMs) and Proprietary Reverse Mortgages (or everything else with a Reverse Mortgage in the title or under the hood). The HECM is the only federally insured and regulated option.

Home Equity Conversion Mortgages (HECMs): The Federally Backed Choice

HECMs are unique because they are insured and regulated by the Federal Housing Administration (FHA). This government backing provides a level of consumer protection and standardization. The FHA insures both the lender against potential losses and the borrower by ensuring continued access to funds even if the originating lender becomes insolvent.

Key things to know about HECMs:

• FHA Insured: This insurance protects you and the lender. Should the loan balance exceed the property value upon your passing, FHA pays the lender. Should the lender go out of business while the borrower should still have access to a line of credit, FHA steps in and ensures that line of credit remains available to the borrower.
• Standardized Guidelines: Qualifications, available funds, and underwriting are consistent across different lenders.
• Loan Limits: Currently, HECMs have a maximum claim amount set by the FHA (in 2025, this is $1,209,750). The maximum claim amount is revised annually by the FHA. If you are offered a “Reverse Mortgage” that exceeds the FHA limits, it will likely be a Proprietary Reverse Mortgage and it will not be insured.
• Lower Interest Rates: Generally, HECMs tend to have lower interest rates compared to proprietary options.
• Mandatory Counseling: Borrowers are required to undergo counseling with a HUD-approved agency to ensure they fully understand the loan terms and implications.
• Partial Funds/Line of Credit: Funds may be available as a lump sum, a line of credit, or a combination, with potential limitations on the initial draw, again due to federally established guidelines.
• Mortgage Insurance Premium (MIP): HECMs require both an upfront and ongoing mortgage insurance premium.

Proprietary Reverse Mortgages: Lender-Specific Solutions

Proprietary reverse mortgages are offered by various private lenders. Unlike HECMs, they are not federally insured and thus regulated, allowing banks to offer their own terms and conditions.

Key things to know about Proprietary Reverse Mortgages:

• Lender Specific: Each lender designs its own unique program.
• Higher Loan Limits: A significant advantage is often the availability of much higher loan limits, sometimes reaching $4 million to $8 million or more. These “jumbo reverse mortgages” cater to homeowners with higher-valued properties exceeding the HECM limit.
• Tighter Underwriting: Lender underwriting standards can be more stringent than FHA guidelines.
• No Federal Insurance: These loans are not insured by the FHA.
• No Mandatory MIP: You typically won’t pay mortgage insurance premiums with a proprietary reverse mortgage, but that often is offset due to the higher interest rate.
• Higher Interest Rates: Interest rates are generally higher compared to HECMs.
• Counseling Usually Required: While not always mandatory, lenders often recommend or require counseling.
• Greater Funds Availability: Proprietary reverse mortgages often allow access to a larger percentage of your home’s equity at closing.

HECM vs. Proprietary: A Quick Comparison for Seniors

So Which Is The Right Choice?

The right choice is to work with a reputable broker, like Reverse  Mortgage Solutions of California.

Why is collaborating with a brokerage like Reverse Mortgage Solutions of California the right answer?

Unlike contacting a single bank or lender directly, which limits you only to the programs they offer, our well-established brokerage has cultivated relationships with numerous financial institutions. This access allows for a comprehensive comparison of both HECM and proprietary reverse mortgage products from many lenders in the market. In essence, we do the comparing and shopping for you.

Reverse Mortgage Solutions of California operates with both state and federal licensing and certifications, ensuring our team provides knowledgeable and authoritative guidance tailored to your specific circumstances. We are committed to empowering you with the information needed to make confident decisions about your home equity.

To gain a deeper understanding of reverse mortgages, we invite you to call us directly at (888) 522-2205 for a personalized consultation or request our complimentary 12-page pamphlet, “10 Things You Should Know About Reverse Mortgages.” This informative guide is designed to equip you with essential knowledge about these types of transactions.

Empower yourself with expert guidance. Contact Reverse Mortgage Solutions of California today to explore your reverse mortgage options and determine the best path forward for your financial well-being.