What a Proprietary Reverse Mortgage Is, and How It Differs From the Federally Insured Version

A proprietary reverse mortgage is a reverse mortgage created and funded by a private lender, with no federal insurance behind it. The federally insured version is the Home Equity Conversion Mortgage, or HECM, which is insured by FHA and governed by HUD rules. That single difference, who stands behind the loan, drives nearly every other difference between them.

Both products do the same basic thing. They let an older homeowner convert part of their home equity into cash without a required monthly principal and interest payment, with the balance growing over time and being settled when the home is sold or the last borrower leaves it.

Where they part ways is in the rulebook. HECM terms are largely set by HUD and are the same lender to lender. Proprietary terms are set by whichever investor designed the program, so they vary and can change.

The HECM has a maximum claim amount, a ceiling on the home value FHA will consider when calculating how much a borrower can access. If your home is worth meaningfully more than that ceiling, the equity above it simply does not count toward your proceeds under a HECM.

Proprietary reverse mortgages exist in large part to serve that gap. Because a private investor is setting the rules, some programs will underwrite against a much higher home value, which can mean more accessible equity for a homeowner in a higher-value property.

That is why you will sometimes hear these called jumbo reverse mortgages. The label is informal, but it points at the real reason the category exists.

HECM borrowers pay FHA mortgage insurance, both an upfront premium and an ongoing one. Proprietary reverse mortgages generally do not carry that insurance premium, which sounds like a straightforward savings, and sometimes it is. But the insurance is buying something real.

FHA insurance is what makes a HECM non-recourse in a federally guaranteed way: if the balance eventually exceeds the home's value, the insurance fund absorbs the shortfall rather than the borrower's heirs. It also guarantees that an available line of credit stays available even if the lender fails, and it is what allows the unused portion of a HECM line to grow over time.

Proprietary programs may offer similar protections by contract rather than by statute. Similar is not identical, and the specific language in a given program is worth reading closely rather than assuming.

HECM eligibility generally starts at age 62. Some proprietary programs start earlier, which can matter for a household where one spouse is younger. Proprietary programs also sometimes accept property types a HECM will not, certain condominiums in projects without FHA approval being the common example.

Disbursement structure differs too. A HECM can be taken as a lump sum, monthly payments, a line of credit, or a combination, with the credit-line version being the one many borrowers plan around. Many proprietary programs are built as a single lump-sum draw at closing, with fewer or no line-of-credit features.

HECMs also require HUD-approved counseling before you can proceed. Proprietary programs may not require it, though going through it anyway is rarely a bad use of an afternoon when the decision involves this much of your net worth.

Neither product is the better one in the abstract. The comparison depends on your home's value relative to the FHA ceiling, whether you want a growing line of credit or a one-time draw, your age and your spouse's age, your property type, and how much weight you place on federal insurance versus contractual protection.

It also depends on what the equity is actually for. A homeowner solving a one-time need reads these differently than one building a standby reserve to draw on over decades.

And worth naming: a reverse mortgage is one of several ways to reach home equity. A conventional cash-out refinance or a home equity line are different tools with different tradeoffs, chiefly the presence of a required monthly payment. Understanding all of them before choosing is the point of an exercise like this.