If you’re wondering which three kinds of reverse mortgages there are? You’re not alone. A reverse mortgage allows eligible homeowners to convert home equity into cash without selling their property or making monthly loan payments.
For many senior homeowners, reverse mortgages provide an effective way to supplement retirement income, improve cash flow, and support long-term retirement planning. Understanding the different reverse mortgage types can help you choose the best solution based on your financial goals.
In this guide, you’ll learn about the three main types of reverse mortgages: the Home Equity Conversion Mortgage (HECM), single-purpose reverse mortgage, and proprietary reverse mortgage, along with eligibility requirements, payment options, costs, benefits, and alternatives.
Understanding Reverse Mortgages
What Is a Reverse Mortgage?
A reverse mortgage loan is a financing solution that allows homeowners age 62 and older to access the equity in their home while continuing to live there.
Key Benefits
- Convert housing wealth into cash
- Create an additional income stream
- Improve retirement cash flow
- Maintain homeownership
- Use funds for nearly any purpose
Unlike a traditional mortgage, reverse mortgage repayment is generally delayed until the borrower sells the home, moves out permanently, or passes away.
How Reverse Mortgages Work
A reverse mortgage uses your property as collateral.
Instead of making monthly payments to a lender, the lender provides funds through various payment options, including:
- Lump sum payment
- Monthly payments
- Monthly cash advances
- Line of credit
Over time, the reverse mortgage balance grows because interest and fees are added to the loan balance.
Why Reverse Mortgages Are Popular Among Retirees
Many retirees use reverse mortgages to:
- Supplement retirement income
- Cover retirement expenses
- Improve financial flexibility
- Reduce pressure on retirement funds
- Support long-term financial stability
What Are the 3 Types of Reverse Mortgages?
Overview of the Different Types of Reverse Mortgages
There are three primary reverse mortgage options available:
| Reverse Mortgage Type | Provider | Best For |
| Home Equity Conversion Mortgage (HECM) | Federal Government | Most homeowners |
| Single-Purpose Reverse Mortgage | Nonprofits & Local Governments | Specific expenses |
| Proprietary Reverse Mortgage | Private Lenders | High-value homes |
Key Differences Between Reverse Mortgage Types
The main differences involve:
- Eligibility requirements
- Loan limits
- Costs and fees
- Payment options
- Intended use of funds
Which Reverse Mortgage Option Is Best?
The best reverse mortgage option depends on:
- Your home value
- Retirement goals
- Income needs
- Home equity available
- Desired payment structure
Home Equity Conversion Mortgage (HECM)
What Is a Home Equity Conversion Mortgage?
Home Equity Conversion Mortgages (HECM) are the most common kind of reverse mortgage.
Also known as:
- HECM
- HECM loan
- HECM reverse mortgage
- Federally-insured home equity conversion mortgage
- HUD reverse mortgage
It is insured by the Department of Housing and Urban Development (HUD).
HECM Eligibility Requirements
To qualify:
- Be at least 62 years old
- Meet primary residence requirements
- Complete reverse mortgage counseling
- Pass a financial assessment
- Have sufficient home equity
HECM Payment Options and Loan Limits
Available payment options include:
- Line of credit
- Lump sum payment
- Monthly payments
- Monthly cash advances
HECM loan limits are established annually by HUD.
Single-Purpose Reverse Mortgages Explained
What Is a Single-Purpose Reverse Mortgage?
A single-purpose reverse mortgage is typically offered by:
- Local government agencies
- Nonprofit organizations
Funds can only be used for approved expenses.
Examples include:
- Home repairs
- Property taxes
- Medical expenses
Benefits of Single-Purpose Reverse Mortgages
Advantages
- Lower fees
- Lower interest rates
- Government-backed support
- Low-cost reverse mortgage solution
Disadvantages
- Limited availability
- Restricted use of funds
Proprietary Reverse Mortgages Explained
What Is a Proprietary Reverse Mortgage?
A proprietary reverse mortgage is a privately funded reverse mortgage offered by a private lender.
These loans are not federally insured.
Reverse Mortgages for High-Value Properties
Proprietary reverse mortgages are ideal for:
- High-value home reverse mortgage borrowers
- Jumbo reverse mortgage applicants
- Homeowners with significant accumulated equity
HECM vs Proprietary Reverse Mortgage
| Feature | HECM | Proprietary Reverse Mortgage |
| Government Insured | Yes | No |
| Counseling Required | Yes | Usually No |
| Loan Limits | Yes | Often Higher |
| Best For | Most Borrowers | High-Value Homes |
Who Qualifies for a Reverse Mortgage?
Basic Reverse Mortgage Eligibility Requirements
Most reverse mortgage qualifications include:
- Homeowners age 62 and older
- Primary residence requirement
- Sufficient home equity
- Property ownership
Income, Assets, and Financial Assessment
Lenders may request:
- Proof of income and assets
- Financial assessment documentation
- Insurance and tax payment history
Home Equity and Reverse Mortgages
Understanding Home Equity
Home equity is the difference between:
Home Value − Mortgage Balance
The greater your accumulated equity, the more funds may be available.
How Reverse Mortgages Let You Access Home Equity
Reverse mortgages help homeowners:
- Tap into home equity
- Access home equity without selling
- Improve cash flow
- Increase financial flexibility
Reverse Mortgage Payment Options
Lump Sum Payment Option
Receive all loan proceeds at once.
Best for:
- Debt payoff
- Major purchases
- Large retirement expenses
Monthly Payment Plans
Receive scheduled monthly payments that help support retirement income.
Reverse Mortgage Line of Credit
A flexible option that allows borrowing only when needed.
Costs and Fees Associated With Reverse Mortgages
Reverse Mortgage Costs Explained
Common costs include:
- Origination fees
- Closing costs
- Mortgage insurance
- Interest charges
Ongoing Homeowner Responsibilities
Borrowers must continue paying:
- Property taxes
- Homeowners insurance
- HOA fees
- Maintenance expenses
Reverse Mortgage Alternatives to Consider
Home Equity Loan (HELOAN)
A home equity loan provides a lump-sum payment while preserving ownership.
Home Equity Line of Credit (HELOC)
A HELOC offers flexible access to equity as needed.
Reverse Second Mortgage
A reverse second mortgage allows homeowners to access equity while keeping their existing first mortgage.
How to Choose the Best Reverse Mortgage Option
Consider These Factors
- Retirement planning goals
- Available home equity
- Loan costs
- Payment preferences
- Future housing plans
Working with a qualified reverse mortgage lender or mortgage specialist can help determine the best fit.
Conclusion
Understanding Your Reverse Mortgage Options
The three primary reverse mortgage types- HECM, single-purpose reverse mortgage, and proprietary reverse mortgages- serve different homeowner needs.
Using Home Equity to Support Retirement
A reverse mortgage can provide retirement income, improve cash flow, and help homeowners access housing equity without selling their homes.
Making an Informed Financial Decision
Before choosing a reverse mortgage solution, compare eligibility requirements, costs, payment options, and alternatives. Consulting a trusted reverse mortgage specialist can help ensure the best outcome for your retirement and long-term financial planning.
Frequently Asked Questions
Which Three Types of Reverse Mortgages Are There?
The three main types are the Home Equity Conversion Mortgage (HECM), single-purpose reverse mortgage, and proprietary reverse mortgage.
A Home Equity Conversion Mortgage (HECM): What is it?
A HECM is a federally insured reverse mortgage backed by HUD and available to eligible homeowners age 62 and older.
What is the difference between an HECM and a proprietary reverse mortgage?
HECM loans are government-insured and have borrowing limits, while proprietary reverse mortgages are offered by private lenders and may allow larger loan amounts.
Who qualifies for a reverse mortgage?
Most borrowers must be at least 62 years old, live in the property as their primary residence, and have sufficient home equity.
What are the best reverse mortgage alternatives?
Popular alternatives include a home equity loan (HELOAN), a home equity line of credit (HELOC), a reverse second mortgage, and a cash-out refinance.
