Senior Reverse Mortgage

There are three types of reverse mortgages available to consumers: single-purpose, proprietary and Home Equity Conversion Mortgages (HECMs). Single-purpose reverse mortgages are loans, funded by nonprofit and local government agencies, that must be used for a specific purpose. Due to this restriction, almost all borrowers opt for proprietary and HECM reverse mortgages.

Proprietary Vs. HECM Reverse Mortgages

An HECM is a reverse mortgage insured by the Federal Housing Administration (FHA). Because these loans are insured, borrowers are guaranteed to receive their full reverse mortgage proceeds. This insurance also ensures that borrowers will not end up owing their lender more than their home is worth. However, in return for government insurance, borrowers are required to pay mortgage insurance premiums and are restricted to a maximum claim amount of $625,500. HECMs are only available on primary residences, and the residence must meet certain property requirements as set by FHA.

A proprietary reverse mortgage is one funded by a private financial institution. These loans are not backed by FHA nor are they restricted to FHA’s maximum claim limit. Unlike HECMs, propriety reverse mortgages are available on vacation homes and rental properties. However, to get one of these loans, expect to pay higher interest rates and possibly higher fees.

Why Most Consumers Choose HECM Reverse Mortgages

Over 90% of all reverse mortgages are HECMs. There are two main reasons for why these loans are so popular with seniors. First, because these loans are backed by FHA, more lenders are willing to offer them to consumers. There are currently very few lenders who offer propriety reverse mortgages. This makes it difficult to find a lender and almost impossible to shop around for a low interest rate or favorable terms.

Proprietary loans are also somewhat risky. If a lender goes out of business, there is no guarantee that their borrowers will receive the proceeds due to them. Many seniors are just not comfortable knowing that they might not receive their proceeds on time–or at all in extreme situations.

For more information of HECM reverse mortgages, contact us at (877) 267-0274 to find out if these loans are right for you.