Proprietary Reverse Mortgages

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What Are Proprietary Reverse Mortgages?

A proprietary reverse mortgage is a financial product that allows homeowners, generally aged 62 and older, to convert a portion of their home equity into cash. Unlike Home Equity Conversion Mortgages – HECM Saver & HECM Standard, which are federally insured and regulated, proprietary reverse mortgages are private loans backed by the companies that develop them.

Key Features

  1. Non-FHA Insured: Proprietary reverse mortgages are not insured by the Federal Housing Administration (FHA).
  2. Flexible Property Types: They can be used for homes that do not meet FHA guidelines, such as high-value homes or non-standard types like condominiums.
  3. Higher Loan Limits: Usually, these mortgages have higher borrowing limits than HECMs, making them suitable for homes with higher valuations.
  4. Customization: They often offer more customization in terms of payment options and loan terms.

Pros and Cons

Pros

  1. Higher Loan Amounts: Ideal for homeowners with high-value homes who wish to access more of their equity.
  2. More Property Types Eligible: Can be used on properties that don’t qualify for HECMs.
  3. Tailored Options: Potential for more customized loan terms and repayment options.

Cons

  1. No Federal Protection: Lacks the consumer protections that come with federally insured options.
  2. Higher Costs: Often come with higher interest rates and fees compared to HECMs.
  3. Limited Availability: Not as widely available as federally insured options; fewer lenders offer them.

Eligibility Criteria

  1. Age Requirement: Typically, you must be at least 62 years old.
  2. Property Requirement: You must own a substantial amount of home equity.
  3. Financial Assessment: Lenders will assess your ability to pay property taxes, homeowner’s insurance, and maintenance costs.

How to Apply

  1. Consult a Financial Advisor: Because of the complexity and costs, it’s advisable to consult a financial advisor.
  2. Shop Around: Compare rates, fees, and terms from multiple lenders.
  3. Application and Assessment: Complete the application process, which will include a financial assessment.
  4. Closing: If approved, you’ll attend a loan closing to sign the agreement.

Alternatives to Consider

  1. Home Equity Loan or Line of Credit: If you need a smaller amount and can make regular payments.
  2. Downsizing: Selling your current home and buying a smaller, more affordable one.
  3. HECMs: If your property and situation fit, a federally-insured reverse mortgage may be more suitable.
Proprietary reverse mortgages offer a unique way to tap into your home’s equity, especially for higher-value properties or non-standard homes. However, they also come with a set of risks and costs that should be carefully considered. Always consult with a financial advisor to determine if this option is right for you.

FAQ

A Proprietary Reverse Mortgage is a type of reverse mortgage designed for homeowners with high-value homes, exceeding the FHA lending limit for HECMs. It is offered by private lenders and is not federally insured.

Homeowners aged 62 or older can borrow against the equity of their homes. The loan amount depends on the home’s value, the borrower’s age, and the current interest rate. Borrowers are not required to make monthly mortgage payments, as the loan is repaid when the homeowner sells the house, moves out permanently, or passes away.

Homeowners must be at least 62 years old, live in the home as their primary residence, and have substantial home equity. Lenders may also require a financial assessment to ensure the borrower can cover property taxes, insurance, and home maintenance.

The loan amount depends on the home’s appraised value, the borrower’s age, and current interest rates. Typically, the older the homeowner and the more valuable the home, the larger the loan amount available.

Borrowers may incur costs such as origination fees, appraisal fees, closing costs, and servicing fees. Interest accrues on the loan balance over time, and the interest rate may be higher than that of a HECM.

Yes, but the loan must be repaid first. Your heirs can repay the loan and keep the house, or sell the house and use the proceeds to repay the loan, with any remaining funds going to them.

While they are not federally insured like HECMs, Proprietary Reverse Mortgages are still regulated and must comply with state laws. Borrowers should carefully read the loan terms and consult with a financial advisor to ensure it is a suitable option.

Some lenders offer a Proprietary Reverse Mortgage for Purchase, allowing seniors to buy a new home without having to make monthly mortgage payments.

Some Proprietary Reverse Mortgages come with a “non-recourse” feature, meaning the borrower (or their heirs) will never owe more than the home’s current value, even if the loan balance exceeds it. However, this is lender-specific and should be verified before entering into the loan.

Proprietary Reverse Mortgages are private loans and are not FHA-insured. They typically allow for larger loan amounts than HECMs but may have higher costs and interest rates. They also may not offer the same consumer protections as HECMs.

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