Proprietary Reverse Mortgage: Unlocking More Equity for Homeowners

Introduction

For many seniors, home equity represents a significant portion of their net worth. While traditional reverse mortgages offer a way to tap into this wealth, they come with limitations on loan amounts and property types. A Proprietary Reverse Mortgage provides an alternative, especially for homeowners with high-value properties or those who don’t qualify for a government-insured Home Equity Conversion Mortgage (HECM).

This guide explores what proprietary reverse mortgages are, how they work, their benefits, eligibility criteria, and potential risks, helping you determine if this financial tool suits your needs.

What is a Proprietary Reverse Mortgage?

A proprietary reverse mortgage is a private loan offered by financial institutions, designed for homeowners aged 55 or older (age requirements may vary). Unlike HECM loans, which are insured by the Federal Housing Administration (FHA), proprietary reverse mortgages are not subject to federal loan limits. This makes them ideal for borrowers who own high-value homes that exceed the FHA lending cap.

Since these loans are privately funded, they often provide greater flexibility in loan amounts, allowing homeowners to access a larger portion of their home equity compared to a traditional reverse mortgage.

How Does a Proprietary Reverse Mortgage Work?

The basic mechanics of a proprietary reverse mortgage are similar to a standard reverse mortgage:

1. Home Equity Conversion – The homeowner borrows against their home’s equity and receives funds as a lump sum, monthly payments, or a line of credit.
2. No Monthly Mortgage Payments – Borrowers are not required to make monthly payments; the loan balance accumulates over time and is repaid when the homeowner sells the home, moves out permanently, or passes away.
3. Higher Loan Limits – Unlike FHA-insured reverse mortgages, proprietary loans can allow homeowners to borrow higher amounts, making them particularly useful for luxury properties.
4. Loan Repayment – The loan is repaid from the proceeds of the home sale, and any remaining equity belongs to the borrower or their heirs.

Key Benefits of Proprietary Reverse Mortgages

1. Higher Borrowing Limits

One of the primary advantages of proprietary reverse mortgages is the ability to borrow more money. This is particularly useful for homeowners with properties worth well over the FHA lending limits (currently $1,149,825 for HECMs in 2025).

2. No FHA Mortgage Insurance Premiums

Since these loans are not FHA-insured, borrowers don’t have to pay mortgage insurance premiums (MIP), which are required for HECM loans. This can result in significant cost savings.

3. More Property Types Qualify

Proprietary reverse mortgages may be available for homes that don’t qualify for a HECM, including:

• High-value properties exceeding FHA limits
• Condominiums that aren’t FHA-approved
• Multi-million-dollar homes
• Co-ops in certain locations

4. Flexible Payout Options

Borrowers can choose how they receive their funds—whether as a lump sum, line of credit, or scheduled monthly payments—allowing for more customized financial planning.

5. Potential for Younger Borrower Eligibility

Some lenders allow homeowners as young as 55 to qualify, whereas FHA-backed reverse mortgages require borrowers to be at least 62 years old.

Eligibility Requirements

Each lender may have different criteria for a proprietary reverse mortgage, but common requirements include:

• Age: Typically, at least 55 years old (some lenders may require 60+).
• Home Value: The property must have significant equity, usually valued above $1 million.
• Primary Residence: The home must be the borrower’s primary residence.
• Financial Assessment: Some lenders may assess the borrower’s financial situation to ensure they can cover property taxes, homeowners insurance, and maintenance costs.

Drawbacks and Risks

While proprietary reverse mortgages offer significant benefits, there are also potential risks:

1. Higher Interest Rates

Interest rates on proprietary reverse mortgages can be higher than FHA-backed HECMs, leading to greater loan balance accumulation over time.

2. Limited Consumer Protections

Since these loans are not regulated by the federal government, they may have fewer consumer protections compared to HECMs. It’s crucial to thoroughly review the loan terms and consult with a financial advisor.

3. Potential for Rapid Equity Depletion

Borrowing a large amount upfront can quickly deplete home equity, leaving fewer assets for heirs. Seniors should consider their long-term financial needs before taking out a large lump sum.

4. Heir Inheritance Concerns

Since the loan is repaid when the home is sold, heirs may need to refinance or sell the property if they wish to keep it. Understanding the impact on inheritance planning is essential.

Who Should Consider a Proprietary Reverse Mortgage?

A proprietary reverse mortgage is best suited for:

• Homeowners with high-value properties exceeding FHA loan limits.
• Seniors looking to maximize their equity access without FHA restrictions.
• Borrowers who don’t want to pay FHA mortgage insurance premiums.
• Those with non-FHA-approved condos or unique property types.
• Individuals younger than 62 who need an equity loan option.

How to Apply for a Proprietary Reverse Mortgage

If you’re considering a proprietary reverse mortgage, follow these steps:

1. Assess Your Needs – Determine how much home equity you need to access and whether you qualify.
2. Compare Lenders – Since proprietary loans are privately offered, interest rates, fees, and loan amounts can vary significantly.
3. Consult a Financial Advisor – An expert can help you weigh the pros and cons and ensure this is the right decision for your financial goals.
4. Get a Loan Estimate – Request quotes from multiple lenders and review their terms carefully.
5. Complete the Application Process – Work with the lender to submit the necessary documents and undergo the approval process.

Final Thoughts

A proprietary reverse mortgage offers an excellent way for homeowners with high-value properties to unlock more equity without FHA limitations. However, it’s essential to weigh the benefits against potential risks, such as higher interest rates and reduced federal protections.

If you’re considering this option, comparing lenders and seeking professional financial advice can help ensure you make the best choice for your retirement planning.