Which Type of Reverse Mortgage Is Best for You?

There are three main types of reverse mortgages: HECM or HUD reverse mortgages, proprietary or jumbo reverse mortgages, and single purpose reverse mortgages. As with all reverse mortgages, you do not need to make a monthly mortgage payment or repay the loan as long as you abide by the terms of your loan agreement.

Each type of reverse mortgage is designed to meet a specific niche. Read the descriptions below to determine which type is best for you.

HECM or HUD Reverse Mortgages - Home Equity Conversion Mortgages (HECM) are offered by the Department Of Housing And Urban Development (HUD). This is the most common type of reverse mortgage. Last year about 90% of all reverse mortgages were HECMs. HECMs are insured by the Federal Housing Administration (FHA) and loan amounts are limited by FHA. Mortgage fees for HECMs are regulated and limited by HUD, and borrowers are required to obtain reverse mortgage counseling before taking out one of these loan. If you do not need to borrow more than the FHA allows, this type of reverse mortgage is a good bet.

Note: FHA charges an up front mortgage insurance premium (UFMIP) on all FHA loans. On April 5, 2010 the UFMIP on HUD reverse mortgages increased to 2.00%.

Proprietary or Jumbo Reverse Mortgages- If you have an expensive home and would like to borrow more than FHA allows, you would need a proprietary reverse mortgage. Proprietary simply means that a non-government investor has designed a reverse mortgage product to fill a niche not met by HECMs. You may also hear this type of loan referred to as a jumbo reverse mortgage. You should expect the costs and reverse mortgage rate to be higher with proprietary reverse mortgages.

Go to the jumbo reverse mortgage calculator.

Single-purpose reverse mortgages - These may also be called property tax deferment or deferred payment loans. They are usually offered by local government agencies to those with very low incomes. If paying your property taxes or maintaining your home creates a hardship, seek help from your local housing authority. If your home needs repairs and you are unable to afford them, this type of reverse mortgage would allow you to make the qualified repairs with little or no out of pocket expense. The balance due and applicable interest charges would only be payable when you stop using the home as a primary residence or die.