HECM vs Proprietary / Jumbo Reverse Mortgage

Quick Comparison: HECM and Proprietary Reverse Mortgages at a Glance

The table below sets the two loans side by side. Each row is one place where they differ.

This table summarizes general features. Terms, limits, and requirements vary by lender and change over time. HUD publishes current HECM figures at hud.gov.

What Is a HECM?

The HECM is the reverse mortgage the federal government stands behind. HUD states that the HECM is the only reverse mortgage insured by the U.S. federal government. It is available only through an FHA-approved lender. The program comes from 12 U.S.C. § 1715z-20. HUD's rules for it are in 24 C.F.R. Part 206.

Who may qualify. The youngest borrower must be 62 or older at closing under 24 C.F.R. § 206.33, and the statute defines an elderly homeowner by the same age (12 U.S.C. § 1715z-20(b)(1)). Under 24 C.F.R. § 206.39, the home must be the principal residence of each borrower at closing. It must also be the principal residence of an Eligible Non-Borrowing Spouse, if there is one. More detail is in reverse mortgage age requirements.

Counseling first. A HECM borrower must receive counseling from an independent third party before the loan. That counselor may not be tied to anyone who originates or funds the loan, or who sells annuities, investments or insurance (12 U.S.C. § 1715z-20(d)(2)(B)). HUD reverse mortgage counseling is the usual first formal step.

Insurance. The borrower pays an FHA mortgage insurance premium (MIP). This is a charge that funds FHA's insurance on the loan. The statute directs HUD to step in with funds a borrower is owed but has not received because the party responsible for payment defaulted (12 U.S.C. § 1715z-20(i)(1)(A)). HUD publishes the current MIP rates.

Non-recourse. The homeowner is not liable for any shortfall between the loan balance and what the lender recovers from the net sale proceeds or from FHA insurance benefits (12 U.S.C. § 1715z-20(d)(7)).

The limit. HUD sets a maximum claim amount each year. Under Mortgagee Letter 2025-22, it is $1,249,125 for January 1 through December 31, 2026. The amount actually available depends on factors including the youngest borrower's age, as how much a reverse mortgage provides explains.

Payment options. The statute lists these methods (12 U.S.C. § 1715z-20(d)(9)):

• A line of credit. The borrower draws money as needed.
• Monthly payments over a term. The borrower chooses the length of the term.
• Monthly payments over a term combined with a line of credit.
• Tenure payments. These are monthly payments for as long as the borrower occupies the home under the loan's terms.
• Tenure payments combined with a line of credit.
• Any other basis HUD considers appropriate.

Each method is subject to lender approval and the borrower's obligations.

Obligations and repayment. The CFPB states that borrowers must pay property taxes and homeowners insurance, use the home as their principal residence, and keep it in good condition.

Under 24 C.F.R. § 206.27(c), the loan is due in full if a borrower dies and the home is not the principal residence of at least one surviving borrower. That due status is deferred for an Eligible Non-Borrowing Spouse who meets the Deferral Period requirements. The loan is also due if a borrower conveys all title and no other borrower keeps title.

With HUD's approval, the loan also becomes due in these situations, and each one applies only if the home is not the principal residence of at least one other borrower:

• Moving out. The home stops being a borrower's principal residence for a reason other than death.
• Illness. A borrower is away for longer than 12 consecutive months because of physical or mental illness.

The loan can also become due, with HUD's approval, if:

• Property charges go unpaid. The borrower does not provide for paying property charges.
• Another obligation goes unmet. The borrower does not perform an obligation under the mortgage.

What Is a Proprietary Reverse Mortgage and Who Is It For?

Here the rules come from the lender rather than from HUD. A proprietary reverse mortgage is a private loan offered by an individual lender. The CFPB notes that these loans are not insured by the federal government and are typically designed for borrowers with higher home values.

"Jumbo" simply means large. A jumbo reverse mortgage is a proprietary loan built for homes whose value goes beyond what the HECM limit can reach. It is a description of loan size, not a separate legal category.

Because the HECM statute does not govern these loans, each lender sets its own terms. Those terms include the following:

• Age. Some products may accept borrowers younger than 62, but the minimum age varies by lender and by state.
• Property. Eligible property types depend on the lender.
• Fees. The lender sets its fees and discloses them in the loan documents.
• Payment options. These depend on the product. A lump sum, line of credit or monthly payments may or may not be offered.

There is no FHA mortgage insurance premium. That means one cost is missing, but so is FHA's insurance backstop.

Counseling is not built in the same way. The FTC says some lenders offering proprietary reverse mortgages also require counseling. A borrower can ask the lender whether it does.

Non-recourse protection, which limits the debt to the home's value, is common but depends on the contract. The FTC suggests checking that the loan has a "non-recourse" clause before agreeing.

The basic mechanics still apply. Interest and charges are added to the balance, so the amount owed grows over time. The loan agreement sets the borrower's duties, which typically include living in the home as a principal residence, paying taxes and insurance, and keeping up the home. The agreement also says when the loan comes due, typically when the last borrower dies, sells, or moves out.

Key Differences Between HECMs and Proprietary Reverse Mortgages

Five differences tend to decide the comparison.

Home value. The HECM can lend only against value up to the maximum claim amount. HUD bases the HECM amount on the lesser of the appraised value, the FHA limit, or the sales price. For a home worth far more than that limit, a HECM leaves equity untouched. A jumbo product may reach some of that equity.

Cost structure. A HECM carries an FHA mortgage insurance premium charged both upfront and annually. It also carries an origination fee that federal rules limit and that may be fully financed into the loan (12 U.S.C. § 1715z-20(r)). A proprietary loan has no MIP. Its fees are set by the lender and are not subject to the HECM fee limits. Comparing the total cost over time, not one line item, gives the clearer picture.

Protections. HECM borrowers have the federal statute and HUD's rules in 24 C.F.R. Part 206. These include required disclosures, a yearly statement of the loan balance, and a ban on requiring other financial products as a condition of the loan, with exceptions for customary insurance such as title and hazard coverage (12 U.S.C. § 1715z-20(e), (o)). A proprietary borrower relies on the contract and on whatever law applies to it.

Counseling. Independent counseling is required for a HECM. For a proprietary loan, it depends on the lender.

Non-recourse. The HECM's limit on the debt is written into federal law and supported by FHA insurance. A proprietary product's limit is only as strong as its contract.

Property and regulation. The HECM requires a 1- to 4-unit dwelling with one unit occupied by the borrower, meeting FHA standards (12 U.S.C. § 1715z-20(d)(3)). A proprietary lender may accept property types FHA does not. The CFPB's consumer pages explain reverse mortgage requirements in plain terms.

When a HECM May Fit Your Situation

For a family weighing the safety of the loan as much as the dollars, the HECM's features often line up. A HECM tends to fit when:

• The home's value sits at or below the maximum claim amount. The limit then takes little or nothing away from the calculation.
• The homeowner values federal protections. These include independent counseling before closing, required cost disclosures, and non-recourse protection written into statute.
• The household wants flexibility in how money arrives. Options include a line of credit, monthly term or tenure payments, or a combination. The borrower may generally change methods during the loan, with limits for fixed-rate loans (12 U.S.C. § 1715z-20(d)(10)).
• The youngest borrower is 62 or older. The other HECM requirements, such as principal residence, must also be met.
• The property meets FHA standards. HUD's guide says the property must meet FHA property standards and flood requirements. The lender identifies any repairs needed.

These are descriptions, not a recommendation. A homeowner who fits every condition may still decide that a reverse mortgage of any kind is not the right tool.

When a Proprietary Reverse Mortgage May Fit Your Situation

Some households look at the HECM and find that one of its rules stands in the way. A proprietary product tends to fit when:

• The home is worth well above the HECM maximum claim amount. The owner wants to draw on equity the federal limit would not reach.
• The homeowner is younger than 62. A HECM requires 62, but a particular lender's product may allow a younger age.
• The property does not meet FHA requirements. A private lender may still accept it.
• The borrower is comfortable relying on a private contract. This assumes the borrower has read the non-recourse, fee, payment and repayment terms in the loan documents.

Terms vary by lender and product, so two proprietary loans can differ as much as either differs from a HECM. A HUD-approved housing counselor can still be a useful step for someone considering a proprietary loan. A counselor can help compare its costs and features with a HECM, as the FTC suggests asking.

What Both Types Have in Common

Under the labels, the two loans work the same basic way. Both are loans against home equity. Neither is income, a grant or a government benefit. The CFPB puts it plainly: "A reverse mortgage loan is not free money."

The shared mechanics are these:

• The balance grows. Interest and charges are added to the loan, so the amount owed rises and the equity left falls. The FTC warns that this can use up much, or even all, of the equity.
• The duties continue. The borrower keeps the home as a principal residence, pays property taxes and homeowners insurance, and maintains the home. If these duties are not met, the lender may call the loan due, as the HECM rules described above show.
• Repayment comes at the end. The loan comes due when the last borrower dies, sells, or moves out.
• The debt is usually limited to the home's value. For a HECM, this protection is in federal law. For a proprietary loan, it is in the contract.

When the loan comes due, heirs generally have two paths. They may pay off the balance and keep the home. Or they may sell the home and use the proceeds to repay the loan. The CFPB notes that repayment usually comes from selling the home. Either way, the loan balance reduces what is left for the family.

Before Deciding: Other Options Worth Knowing

The money question sometimes has an answer that does not involve borrowing at all. Federal law requires HECM counselors to discuss options other than a HECM, including other housing, social service, health and financial options (12 U.S.C. § 1715z-20(f)). Here are some of them:

• A budget and benefits check. This looks for programs the household may be missing. The CFPB points to state and local help with utilities, repairs and property taxes.
• Property tax relief. Local programs may lower or defer the tax bill. Applying takes time and paperwork.
• Help from family. This keeps the home free of new debt, but it depends on relatives' means and can strain relationships.
• Selling or downsizing. This frees equity with no loan, but it means leaving the home.
• A home equity loan or line of credit. These add monthly payments that must fit a fixed income. The reverse mortgage vs HELOC comparison walks through the tradeoff.
• A cash-out refinance. This replaces the current mortgage with a larger one that comes with a monthly payment.

A reverse mortgage is one option among these, not the answer to every situation. To reach a HUD-approved counselor, HUD lists the HECM Counselor Roster and the phone line (800) 569-4287.