How Do Proprietary Reverse Mortgage Differ from FHA-insured HECMs?

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What are Proprietary Reverse Mortgages?

Proprietary reverse mortgages are offered by private lenders and tailored to meet specific needs. Unlike FHA-insured HECMs, these mortgages aren't subject to federal regulations. This freedom enables lenders to customize loan terms, such as loan amounts, eligibility criteria, and interest rates.

Key Features of Proprietary Reverse Mortgages:

  1. Higher Loan Limits: Proprietary reverse mortgages often have higher maximum loan amounts compared to FHA-insured HECMs, making them suitable for homeowners with high-value properties.

  2. Flexible Eligibility Requirements: Private lenders may have more lenient eligibility criteria, potentially accommodating individuals who don't qualify for FHA-insured HECMs due to credit or property issues.

  3. Variable Interest Rates: While FHA-insured HECMs offer fixed and adjustable interest rate options, proprietary reverse mortgages typically offer only adjustable rates. Borrowers should weigh the benefits and risks of fluctuating interest rates.

FHA-insured HECMs: The Government-backed Option

HECMs are insured by the Federal Housing Administration (FHA), providing certain protections to borrowers. These loans are subject to strict government regulations, ensuring standardized terms and borrower protections.

Key Features of FHA-insured HECMs:

  1. Government Backing: FHA insurance safeguards borrowers against lender default and ensures that borrowers receive their expected loan benefits, even if the lender fails.

  2. Strict Guidelines: FHA sets guidelines regarding loan limits, eligibility requirements, and mandatory counseling for borrowers. These regulations aim to protect seniors from potential predatory practices.

  3. Fixed and Adjustable Rates: FHA-insured HECMs offer both fixed and adjustable interest rate options, providing borrowers with flexibility and stability in managing their loan terms.

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