When to Use a Proprietary / Private Company Reverse Mortgage
Update: Proprietary / Private Company mortgage loans served their purpose very well during 2006 - 2008. Due to the recent economic downturn and credit crunch as well as the newly raised HECM reverse mortgage loan limit, the Proprietary / Private Company reverse mortgages are practically obsolete. Government backed HECM loans have now completely taken their place. HECM reverse mortgages have much higher loan limits then they used to, use our loan calculator to see how much you can get.
After researching the subject a little most people will become aware that there are both federal-backed HECM loans as well as proprietary reverse mortgage or private reverse mortgages. For many seniors, HECM reverse mortgages seem to be the obvious choice – it's invariably more affordable than the proprietary reverse mortgages being offered by private reverse mortgage companies.
Proprietary reverse mortgage programs aren't really that bad. HECM reverse mortgage loans are just simply more popular. Private reverse mortgage companies, of course, have their own legion of fans. The more important question to ask then is really when you should use a proprietary reverse mortgage or private reverse mortgages as opposed to HECM.
• For bigger cash payouts
The main downside to HECM reverse programs is that the Federal Housing Authority (FHA) has a lending limit that varies from county to county. This means that you can't get 100% on the equity of your home. You can get jumbo reverse mortgages with private a private propriety program. Jumbo mortgages are reverse mortgages in amounts greater than what the FHA is willing to insure.
• For higher value homes
Seniors with substantial equity on their homes or seniors with high value homes are better off approaching private companies if they want to take out a reverse mortgage loan. That's because they can certainly get more money for their equity.
Cutting a reverse mortgage deal with a private company can also prove to be more convenient for seniors. With these companies, you are not required to undergo counseling with a reverse mortgage counselor before you can apply for a loan.
Having more cash for your equity can prove to be the efficient path towards financial freedom. With proprietary reverse mortgages, you receive more money than the HECM reverse mortgage programs. Of course, this promise doesn't prevent prospective borrowers from talking to a financial consultant. The ideal reverse mortgage specialist should not only keep you company during the wait (for the reverse mortgage company to grant you the loan), he/she should be able to give you good advice on proprietary reverse mortgages. Do not expect your consultant to give you a quote from any specific company.
Deciding when to use a proprietary program actually depends on your particular circumstance. Do you really need that much cash? Are you aware of the full terms resulting from borrowing against your home and having it paid after your death or the sale of your house? If the answer is yes, yes, and yes, still do not rush to apply. It is always good advice to get quotes from at least three private reverse mortgage companies.
Take note that there are as many types of proprietary reverse mortgage programs as there are private reverse mortgage companies, so choose carefully.
Federal-backed HECM loans are not necessarily better than proprietary reverse mortgage programs. At the other end neither are proprietary reverse mortgage programs better than federal-backed HECM loans. Again, the better option is the best option for your particular situation. If you have any doubts, try getting a quote from both HECM reverse mortgage lenders and private reverse mortgage lenders.