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A proprietary reverse mortgage is a private reverse-mortgage loan that is not insured by the federal government. An HECM (Home Equity Conversion Mortgage) is the FHA-insured reverse-mortgage program. Both use your home as collateral while you retain title, and both can let you draw money without making the usual monthly principal-and-interest payment. The balance still grows as you borrow and interest and fees accrue. The practical difference is that HECMs operate under federal rules, while proprietary loans are designed and priced by individual lenders. A higher proprietary loan limit can be useful for some high-value homeowners, but it does not automatically mean more cash or a lower-cost loan.
What a proprietary reverse mortgage is
A proprietary reverse mortgage is a private loan secured by a home. It is offered by a lender rather than insured by the Federal Housing Administration (FHA). The borrower remains the legal owner of the property; the lender receives a security interest in the home until the loan is repaid.
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The loan converts part of the homeowner’s equity into cash under the contract’s payout rules. Depending on the product, proceeds may be available as a lump sum, a line of credit, scheduled advances, or a combination. Instead of making regular principal-and-interest payments, the borrower generally allows the balance to increase over time. Borrowed amounts, interest and financed fees are added to the balance, reducing the equity left for a future sale or for heirs.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problems“Proprietary reverse mortgage” describes a category, not one standardized national program. Each lender can set its own eligibility rules, interest-rate structure, fees, property standards, payout methods, servicing practices and repayment provisions. That variation is why two proprietary offers can produce very different results even for the same home.
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How the loan works from application to repayment
1. The lender evaluates the borrower and property
The lender reviews factors such as the borrower’s age, the value and type of property, existing liens, credit or financial-assessment criteria and the expected costs of keeping property charges current. The exact formula is proprietary. A lender may also require that an existing mortgage be paid off at closing, using part of the reverse-mortgage proceeds.
2. The available principal is calculated
The maximum amount that can be borrowed is not simply the home’s appraised value. It depends on the lender’s loan-to-value limits, the age of the youngest borrower, the interest-rate assumptions, the property and the amount needed to satisfy existing liens and financed costs. A high-value home may qualify for a larger dollar amount, but a conservative loan-to-value ratio can still produce less cash than an owner expects.
3. Proceeds are delivered under the contract
After closing, the borrower receives funds according to the selected payout option. A line of credit may allow later draws, while a lump sum provides immediate access but can accrue interest on the entire amount from the start. Scheduled advances can create predictable cash flow but may have restrictions on changing or replenishing the available amount. Read the draw rules, minimums, waiting periods and any unused-line treatment in the written offer.
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Interest accrues on amounts already borrowed. Depending on the contract, origination charges, servicing fees and other financed costs may also be added to the loan balance. An adjustable rate can change the cost of future borrowing and the speed at which the balance grows. Ask for an amortization illustration showing the projected balance under the offered rate and payout schedule.
5. Repayment is triggered by contract events
Reverse mortgages are generally repayable when a specified maturity event occurs, such as the sale of the home, a permanent move, or the death of the last surviving borrower. HECM rules also address an eligible non-borrowing spouse; proprietary contracts may use different definitions and deadlines. A contract can contain additional events, so identify every repayment trigger before signing.
What an HECM is
An HECM is the FHA-insured reverse-mortgage program. The U.S. Department of Housing and Urban Development states that “the only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through a Federal Housing Administration (FHA)-approved lender.”
HECMs follow federal eligibility, disclosure, insurance and servicing rules. The loan is still secured by the home and the borrower retains title. The Consumer Financial Protection Bureau explains that an HECM generally becomes repayable when the borrower moves out, sells the home, or the last surviving borrower or eligible non-borrowing spouse dies, subject to the program’s rules and required notices.
For calendar year 2026, HUD set the HECM maximum claim amount at $1,249,125. This is a program limit used in the HECM calculation, not a guaranteed payout. Actual proceeds depend on the borrower’s age, the interest rate, the home’s value, existing liens, required set-asides and other program factors.
HECM versus proprietary reverse mortgage
| Comparison point | HECM | Proprietary reverse mortgage |
|---|---|---|
| Federal insurance | Insured by the FHA, through the federal HECM program. | Not federally insured; it is a private lender product. |
| Rules and structure | Federal eligibility, disclosure, insurance and servicing requirements apply. | Terms are lender-specific; there is no single federal proprietary program. |
| Maximum claim amount | HUD’s 2026 maximum claim amount is $1,249,125. Actual proceeds can be lower. | Some products advertise higher limits or no comparable program cap, but availability and proceeds vary by lender. |
| Loan-to-value and cost | Use the HECM calculation and compare the lender’s fees, rate and available proceeds. | HUD warns that proprietary products may have higher costs or substantially lower loan-to-value ratios than HECMs. |
| Counseling | Borrowers must receive counseling from a HUD-approved reverse-mortgage counseling agency before obtaining the loan. | Do not assume the HECM counseling rule applies identically. Confirm the lender’s and contract’s requirements. |
| Insurance and protections | Federal insurance and HECM program protections apply, including the HECM non-recourse framework. | Protections depend on the contract and applicable state law; verify whether a comparable non-recourse provision applies. |
Why high-value homeowners consider proprietary loans
The HECM maximum claim amount limits how much of a very expensive home can enter the federal calculation. A proprietary product may use a higher property-value ceiling or a different underwriting model, making it worth requesting a quote when the home’s value is well above the HECM limit.
That possibility is not the same as a promise of better proceeds. HUD’s Housing Counseling Handbook warns that proprietary reverse mortgages may carry higher costs or substantially lower loan-to-value ratios than HECMs. A lender could recognize more of the home’s value while advancing a smaller percentage of it. Compare the net cash available after paying off liens and fees, not just the advertised maximum.
Costs, rates and the balance you leave behind
Interest-rate structure
Ask whether the rate is fixed or adjustable, how often an adjustable rate can change, what index and margin apply, and whether the contract sets a lifetime or periodic cap. A fixed rate can make the balance easier to project but may be paired with a less flexible lump-sum structure. An adjustable rate may support staged draws, while exposing future borrowing and the outstanding balance to rate changes.
Up-front and ongoing charges
Request an itemized estimate of origination fees, appraisal and title charges, recording costs, counseling charges if any, servicing fees, mortgage insurance or other insurance charges, and any required set-asides. Determine which charges are paid in cash and which are financed. Financing a fee avoids an immediate out-of-pocket payment but increases the balance on which interest accrues.
Net proceeds, not the headline limit
Use the lender’s written disclosure to calculate:
- the gross principal limit;
- the amount used to pay an existing mortgage or other liens;
- financed closing costs and required reserves;
- the amount available immediately;
- the amount available later through a line of credit or scheduled advances; and
- the projected balance under realistic interest-rate assumptions.
CFPB recommends comparing options, fees and interest rates from several lenders. A side-by-side worksheet is more useful than relying on a single advertised percentage or maximum loan amount.
Homeownership obligations do not disappear
A reverse mortgage does not transfer ownership to the lender. You remain responsible for the property and for obligations that can cause default if ignored. These commonly include property taxes, homeowners insurance, keeping the home in acceptable condition and occupying it as required by the contract. Failure to meet those obligations can put the home at risk even when no monthly principal-and-interest payment is due.
Before closing, budget for taxes, insurance, repairs, utilities and any association charges. Ask whether the lender requires a tax-and-insurance set-aside, how it is funded, and what happens if the set-aside is exhausted. Also clarify what the contract considers a permanent move, how long the property may be vacant, and how travel, rehabilitation or a move to assisted living affects occupancy.
Repayment, spouses and heirs
When a repayment event occurs, the borrower or estate generally must repay the balance, sell the property, or satisfy the lender through another permitted method. The contract should state the notice period, appraisal process, payoff calculation and whether the property can be sold for less than the balance.
HECMs have a federal non-recourse framework: repayment is generally limited to the home’s value, subject to the program’s conditions and required insurance. Do not assume a proprietary loan provides the same result. Look for an express non-recourse clause and ask what happens if the balance exceeds the property’s sale value.
Spousal protections also require careful review. A spouse who is not a borrower may have different rights depending on whether the person qualifies as an eligible non-borrowing spouse under HECM rules or meets the proprietary lender’s definition. Obtain the lender’s written explanation of what happens if one borrower dies, moves out or enters long-term care.
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Counseling and independent review
HECM borrowers must complete counseling with a HUD-approved reverse-mortgage counseling agency before receiving the loan. The counselor can explain alternatives, obligations and the effect on a spouse or heirs. Counseling is separate from the lender’s sales process.
Proprietary products do not automatically carry the identical HECM counseling requirement. Ask the lender whether counseling is required, who may provide it and whether a certificate is needed before closing. Even when not mandatory, independent counseling or advice from a qualified financial, tax or estate professional can help you test the offer against other ways to access equity.
Questions to ask before choosing an offer
- What is the net amount available after paying off my current mortgage, liens, fees and required reserves?
- Is the rate fixed or adjustable, and how can the rate and balance change?
- Which fees are charged at closing, which are financed, and which continue over time?
- Can I choose a lump sum, line of credit, scheduled advances or a combination?
- Are there minimum draws, unused-line rules, waiting periods or restrictions on changing the payout?
- Exactly which events make the balance due, and what deadlines follow each event?
- What rights does a spouse have if that spouse is not a borrower?
- What happens if the balance exceeds the home’s value at repayment?
- What taxes, insurance, maintenance, occupancy and association obligations must I keep current?
- Is counseling required, and can I receive the complete contract and projected balance schedule before committing?
A practical decision framework
Start with the HECM estimate
Obtain an HECM illustration from an FHA-approved lender and account for the 2026 maximum claim amount of $1,249,125. Treat the illustration as an estimate rather than a guaranteed payout.
Request a proprietary quote if the HECM does not meet the need
A proprietary quote may be worth examining when the home is high value or the HECM proceeds are insufficient. Request the complete written offer, not only a marketing summary.
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Place both offers in one worksheet: net proceeds, rate, draw schedule, all fees, required set-asides, projected balances, repayment triggers, spouse provisions, non-recourse language and property obligations. If a lender will not provide a clear answer in writing, treat that as a reason to pause.
Test alternatives
Depending on your objective, compare the reverse mortgage with downsizing, a conventional home-equity loan, a home-equity line of credit, selling another asset or delaying withdrawals. Each alternative has different payment, rate, tax and housing consequences.
Common mistakes to avoid
- Confusing a higher limit with a better deal: a larger stated limit may come with a lower loan-to-value ratio or higher fees.
- Assuming “reverse” means cost-free equity: interest and fees reduce the equity remaining in the home.
- Assuming HECM protections carry over: proprietary contracts can differ on counseling, non-recourse treatment, spouses and repayment deadlines.
- Ignoring property charges: unpaid taxes, insurance or required maintenance can create a default risk.
- Comparing gross proceeds: subtract liens, financed costs and reserves before deciding how much cash is really available.
- Accepting verbal promises: rely on the signed disclosures and contract, including the payout schedule and repayment provisions.
The right comparison is between actual written offers. A proprietary reverse mortgage can solve a borrowing-limit problem for some high-value homeowners, while an HECM provides a federally insured structure with defined program rules. Neither category is automatically superior; the result depends on the cash needed, the cost of obtaining it, the obligations the homeowner can maintain and the protections the contract provides.
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