Proprietary Reverse Mortgage

Proprietary reverse mortgages were originally designed for high-value homes that exceeded the FHA lending limit, allowing borrowers to access larger loan amounts. Over time, these loans have also been used by borrowers who want to avoid the FHA’s upfront draw limitation. They can be a good option for short-term solutions due to lower closing costs (since there is no MIP) or in cases where a condo does not meet FHA requirements.

When compared to a HECM, proprietary reverse mortgages tend to have lower closing costs, but generally come with higher interest rates and lack some of the FHA benefits, such as the line of credit feature. Both types of loans are non-recourse, meaning that heirs will never owe more than the value of the home.

However, proprietary reverse mortgages are not available in all states. Each state regulator must approve each lender’s fixed and adjustable rate products, and some states have opted not to approve the adjustable rate option, which eliminates the line of credit feature.

In terms of underwriting guidelines, proprietary reverse mortgages are quite similar to FHA loans. This is likely due to a reluctance by investors to create entirely new guidelines and a preference to maintain consistency in the process.

To qualify for a proprietary reverse mortgage, at least one borrower must be 55, 60, or 62 years old at the time of closing, depending on the state’s regulations. If both individuals on the title are at or above the minimum age, both will be considered borrowers, whether they are married or not. The younger borrower’s age is used for life expectancy calculations and to determine the loan amount.

If a younger spouse lives in the home but is not listed as a borrower, they are considered a non-borrowing spouse. Non-borrowing spouses cannot defer the loan balance, so the younger spouse could be required to repay the loan upon the death of the borrowing spouse.

Eligible property types for a proprietary reverse mortgage include single-family residences (SFR), townhomes, condos (with specific restrictions), manufactured homes (with restrictions), and 2-4 unit properties. Regardless of the property type, the home must be owner-occupied.

Condos must be FHA-approved, either through a complex-wide approval or via the single-unit approval process. Manufactured homes must be located on owned land (no rental communities) and must be built after 1976. Additionally, the manufactured home must be placed on only one property and must be removed from

Proprietary reverse mortgages can have either adjustable or fixed interest rates. Fixed rates are typically offered on lump-sum loans, while adjustable rates are used for loans with a line of credit. Adjustable rates are tied to the treasury index rather than the prime index used for HELOCs, with a cap of 5% above the starting rate at the time of closing. The reverse mortgage industry does not offer interest rate locks.

Interest rates are not posted on our website due to the influence of secondary market factors, which can change daily. When we provide a proposal, we include details about the initial interest rate and, if applicable, the cap on the rate for adjustable loans.

The loan-to-value (LTV) ratio is determined by each lender and investor individually. The three key factors that influence the loan amount are the youngest borrower’s age, the home’s appraised value, and the expected interest rate. Generally, the higher the fixed rate, the higher the LTV ratio.

Unlike FHA HECMs, jumbo reverse mortgages do not have a home value cap. Instead, they have a maximum loan amount of $4 million.

Fixed-rate proprietary reverse mortgages require the loan to be disbursed as a lump sum. In contrast, adjustable-rate proprietary reverse mortgages offer a line of credit with distinct features.

This line of credit has a 1.5% growth rate for the first seven years and is available for 10 years, after which it will be closed for further draws. However, this does not mean the loan is due after 10 years; it simply means the line of credit will no longer be available for additional borrowing. 75% of the total loan amount is flexible, meaning it can be borrowed, repaid, and borrowed again.

Unlike a HELOC, which can be frozen, reduced, or canceled at any time and typically comes with a teaser payment followed by a balloon payment, a reverse mortgage line of credit is guaranteed. As long as the loan requirements are met, including living in the home as your primary residence, not leaving for more than 12 months consecutively, and keeping up with property charges, the line of credit cannot be frozen, reduced, or canceled.

Unlike FHA loans, proprietary reverse mortgages do not include upfront or ongoing mortgage insurance premiums, resulting in considerably lower closing costs. However, because the lender assumes the risk of any losses rather than FHA, the interest rates tend to be higher, which balances out the savings from lower closing costs. Other closing costs are generally similar to those of an FHA reverse mortgage.