A Proprietary Reverse Mortgage is one of the Reverse Mortgage Loans that allows senior homeowners to access the equity in their homes through private lenders. The Proprietary Reverse Mortgage is a home-secured private mortgage loan that allows senior citizens aged 62 and older to convert a portion of their home’s equity into cash. These Mortgage Loans are offered and insured by private lenders and are not backed by the government.
Proprietary Reverse Mortgage Loans are not federally insured, nor are they bound by certain limits set by the Federal Housing Administration (FHA). These Mortgage Loans are also known as Jumbo Reverse Mortgages because the lenders can lend amounts larger than the federal limits. There are three types of Reverse Mortgage as Single-Purpose Reverse mortgages, Home Equity Conversion mortgages, and Proprietary reverse mortgages. These Mortgage Loans are backed by the private lender rather than the government and they can exceed the lending cap placed on HECMs.
Proprietary reverse mortgages are not as common as Home Equity Conversion Mortgages (HECMs) and they tend to be used by people who have high-value homes they either fully own or that have a large amount of equity. If we talk about what is equity then it is the the difference in the value of the home and any debt the borrowers owe. Proprietary reverse mortgages are designed for people who have very high-value homes. Proprietary reverse mortgages may offer bigger loan advances as compared to other Reverse Mortgage Loans.
What Is Proprietary Reverse Mortgage?
A Proprietary Reverse Mortgage is a Reverse Mortgage Loan that is issued and backed by a private company. These Mortgage Loans are sometimes called the Jumbo Proprietary Reverse Mortgage Loans because the borrowing amount is not limited by FHA. These Mortgage Loans work the same way most HECM-insured reverse mortgage loans do. The homeowners get a line of credit up to the assessed value of the Home. They can take it as a lump sum, set the monthly annuity for life, or choose a series of monthly payments for the number of years.
What Are The Benefits of Proprietary Reverse Mortgage?
Here are some of the Benefits of the Proprietary Reverse Mortgage Loans:
- Access to Higher Loan Amount: A Proprietary Reverse Mortgage offers a higher loan amount as compared to Home Equity Conversion Mortgages (HECMs) and provides borrowers with greater access to their home equity.
- Flexibility for Higher Value Homes: Proprietary Reverse Mortgage gives benefits to homeowners with higher-value homes. These Mortgage Loans are designed to accommodate properties that exceed the maximum claim amount for HECMs.
- No Government Mortgage Insurance Premium Required: Unlike Home Equity Conversion Mortgages (HECMs), The Proprietary Reverse Mortgage doesn’t require the upfront and ongoing government mortgage insurance premium that reduces the overall costs of the loans.
- Customizable Disbursement Options: The eligible borrowers can choose from various disbursement options in Proprietary Reverse Mortgage, including lump-sum payments, monthly payments, a line of credit, or a combination of these options providing flexibility to meet the financial requirements.
How Does Proprietary Reverse Mortgage Works?
With the Proprietary Reverse Mortgage, eligible borrowers take the tax-free money against the equity in their homes. However, the borrowers need not to make the monthly payments back to the lenders. Instead, the loan is usually repaid once the borrowers no longer live in the home. The home is used as collateral by the lenders to guarantee the loan. In the Proprietary Reverse Mortgage Loan:
- The lender pays off the amount remaining on the mortgage.
- The lender converts part of the equity in their home to regular payments or lump-sum payments.
- The interest is accrued and added to the loan balance.
- The complete loan balance comes due when borrowers are no more, move from the home, or sell the home.
While the borrowers are not responsible for the monthly payments anymore, they continue to pay the property taxes and homeowners insurance. The borrowers are also responsible for the upkeep of the home and keeping it in livable condition. However, the title to the property is still in their name. The Payments made by borrowers in the Proprietary Reverse Mortgage are made in either lump sum or in regular payments. The amount they borrow depends upon many factors, including the Borrower’s age, the rate of interest for the reverse mortgage, the current market value of the home, and The amount owed on the current loan. However, each lender has different criteria, because the Proprietary Reverse Mortgage is not a government-backed Loan and borrowers might qualify for the larger loan but the rate of interest is usually higher.
What Is the Eligibility To Qualify For the Proprietary Reverse Mortgage?
In order to Apply for the Proprietary Reverse Mortgage, The borrowers need to follow these eligibility requirements:
- Borrower’s Age: In order to qualify for the Proprietary Reverse Mortgage, The homeowner’s age must be at least 62 years old similar to the age requirements for HECMs.
- Home Value and Equity: A Proprietary Reverse Mortgage is generally designed for homeowners having high-value homes that exceed the maximum claim amount for the HECMs. The borrowers also have a significant amount of home equity in order to apply for the Proprietary Reverse Mortgage.
- Type of The Property: The Proprietary Reverse Mortgage eligible property type includes single-family homes, condominiums, and multi-unit properties, depending on the lender’s guidelines. However, some lenders may also allow Proprietary Reverse mortgages on second home or investment properties.
- Financial Assessment and Counseling: Most Proprietary Reverse Mortgage lenders require the borrowers to undergo financial assessment and counseling to ensure they understand the loan conditions and can afford to maintain the property, pay property taxes, and maintain the homeowners’ insurance.
How To Apply For The Proprietary Reverse Mortgage?
The Application Process for the Proprietary Reverse Mortgage is as follows:
- Select a Lender: The eligible borrowers need to research and compare various Proprietary Reverse Mortgage lenders to find the best loan terms, rates of interest, and fees for their financial conditions.
- Undergo Financial Assessment and Counseling Process: Most proprietary reverse mortgage lenders require borrowers to undergo a financial assessment and counseling session with a qualified counselor. This process helps ensure that the eligible borrowers understand the loan terms, costs, and responsibilities associated with the Proprietary Reverse Mortgage.
- Appraisal and Underwriting Process: Once a borrower chooses the selected lenders and completes the counseling process the lender will then order the home appraisal to determine the value of the property. Then an underwriter will review the borrowers’ financial situations, credit history, and details of property to determine the eligibility and loan terms.
- Closing the Mortgage Loan and Disbursement of Funds: After completing the underwriting process and the eligible borrower has been approved for the loan, then the lender will have a closing appointment to sign the final loan documents. Once the loan has closed the borrowers will receive the loan proceeds according to chosen Disbursement methods.
Proprietary Reverse Mortgage Reviews
Proprietary Reverse Mortgage can have features that other reverse mortgage loans don’t have such as equity-sharing provisions, also called shared-appreciation provisions. Unlike the Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages do not restrict the amount a borrower can withdraw in the first year of the reverse mortgage term. Here are some of the Pros and Cons of Proprietary Reverse Mortgage:
Pros:
- Proprietary Reverse Mortgage provides for higher-valued homes.
- There is no Government Mortgage Insurance Premium required for the Proprietary Reverse Mortgage.
- With Proprietary Reverse Mortgage, eligible borrowers can use funds for any purpose.
- With a Proprietary Reverse Mortgage, eligible borrowers can get multiple ways to receive funds.
Cons:
- Proprietary Reverse Mortgage Loans offer higher interest rates and fees.
- These Loans have fewer consumer protections.
- Proprietary Reverse Mortgage has an impact on government benefits and taxes.
- Proprietary Reverse Mortgage has a loss on home equity.
Frequently Asked Questions (FAQs)
Question 1: Can Anyone apply for the Proprietary Reverse Mortgage?
Answer: A Proprietary Reverse Mortgage loan meant for senior citizens and those nearing retirement age. However, the eligible borrowers may lose out on the equity in their home and, when they sell the house, the lender will take what they’re owed from the sale price.
Question 2: Can I take the Proprietary Reverse Mortgage If I have an existing mortgage on My Home?
Answer: Yes, Most of the Senior citizens using the Proprietary Reverse Mortgage still owe money on their homes. They will be able to use the Proprietary Reverse Mortgage to pay off their original mortgage and use any money left to cover their living expenses every month.
The Bottom Lines
A Proprietary Reverse Mortgage allows borrowers to access the equity in their home and use the money for anything they like. Because These Reverse Mortgage Loans are not government-insured, eligible borrowers may be able to get more proceeds than from other reverse mortgage Loans and they need not have to pay an upfront mortgage fee. However, the rate of interest in Proprietary Reverse Mortgage may be higher and more risk may be involved.
