Yes, there are different types of reverse mortgages. These can be categorized into the HECM and the Proprietary Reverse Mortgage.
HECM is the commonly used acronym for a Home Equity Conversion Mortgage, a reverse mortgage created by and regulated by the U.S. Department of Housing and Urban Development. An HECM is not a government loan. It is a loan issued by a lender, but insured by the Federal Housing Administration, which is part of HUD. Each month the borrower is charged an annualized insurance fee of 1.25% of the loan balance. Your loan balance thus increases by the amount of this fee. The insurance protects the borrower (1) if a lender were ever unable to make a payment; and (2) if the value of the home upon selling is not enough to cover the loan balance. In the latter case, the government insurance fund pays off the remaining balance. Currently, HECMs make up most reverse mortgages offered in America. HECMs come with rules and regulations that include a requirement that the borrower receive third-party counseling.
Proprietary Reverse Mortgage: Currently, very few proprietary reverse mortgages exist. However, it’s important to mention them, because market conditions may change in the foreseeable future when property values stabilize. Proprietary reverse mortgages are privately insured by the banks and mortgage companies that offer them. They are not subject to all the same regulations as HECMs, but as a standard best practice, most companies that offer proprietary reverse mortgages emulate the same consumer protections that are found in the HECM program, including mandatory counseling. Proprietary reverse mortgages are sometimes called “jumbo” reverse mortgages because they are taken on higher-valued homes, generally $1,500,000 or more.
Still unsure about the differences between these types of reverse mortgages?
A reverse mortgage specialist like David Chee can explain the relative merits of these two types of reverse mortgages and help you come to the best decision for you and your family.Get Started with a Customized Quote