What are the 3 Types of Reverse Mortgages?

During retirement, many seniors end up "house-rich, cash-poor". As medical bills, home upkeep costs, and everyday bills increase, achieving financial security can be a challenge, particularly for seniors who have left the workforce.

That's where reverse mortgages come in. If you’ve been considering accessing your home’s equity without selling, you’ve likely heard of reverse mortgages. But it may surprise you to learn that there are three different kinds? Yes, each has its own function and set of rules.

I’ll explain the three types of reverse mortgages that are on the market today: 

1. HECMs (Home Equity Conversion Mortgages)

2. Proprietary loans, and

3. Single-purpose options.

By the end of this blog, you’ll have a pretty good idea which might work out best for you and your family. We are also happy to inform our readers that Equity Access Group was recently recognized as one of the top reverse mortgage blogs for 2025. Without any delay, now lets dive in to the topic!

What Exactly Is a Reverse Mortgage?

A reverse mortgage is the reverse of a traditional mortgage. Instead of making monthly payments to a lender, people 62 and older borrow money against their home’s value, and the lender makes payments to them. The loan does not need to be repaid until the homeowner is no longer using the home as their primary residence, having moved out, sold the home or died.

Many retirees use reverse mortgages to:

• Handle daily living expenses when savings fall short
• Pay off their existing mortgage to eliminate monthly payments
• Fund necessary home improvements or modifications
• Cover unexpected healthcare costs or long-term care

Let's dive into the three types of reverse mortgages and see which one might fit your needs.

The 3 Types of Reverse Mortgages Explained

There are mainly 3 types of reverse mortgages accessible for the elderly people: 

1. Home Equity Conversion Mortgages (HECMs)

Today’s American reverse mortgage is the FHA-insured Home Equity Conversion Mortgage (HECM). These loans are guaranteed by the Federal Housing Administration (FHA) and were created to offer seniors safe, predictable access to their home equity. And the government guarantee offers crucial protections for borrowers and their descendants.

Consider HECMs the “Swiss Army knife” of reverse mortgages, they’re flexible and provide more than one way to receive your money:

• As a lump sum payment
• Through monthly checks in your mailbox
• As a line of credit you can tap when needed
• Or some combination of these options

Key Features

The key features of HECMS are: 

1. Federal insurance protection: The federal insurance means neither you nor your heirs will ever owe more than your home is worth, even if the loan balance grows larger than the home's value.

2. Multiple payout choices: You choose how to receive your money based on what works for your situation.

3. Mandatory counseling for your protection: Face-to-face or telephone counseling sessions ensure you fully understand what you're signing up for before you commit.

4. Upfront mortgage insurance premium: These loans require mortgage insurance premiums, which add to the initial costs but provide important protections.

5. Standardized terms and rates: Because HECMs are government-regulated, interest rates and terms are more standardized than proprietary options, making them easier to understand.

6. Non-recourse protection: You'll never owe more than your home is worth, even if property values decline significantly.

Who It's Best For?

HECMs are particularly well-suited for seniors who:

• Own homes valued under the FHA lending limit ($1,089,300 as of 2023)
• Want the security of government regulation and oversight
• Need flexibility in how they receive their funds
• Plan to stay in their home for the long term
• Want a line of credit that can grow over time
• Need help paying off an existing mortgage to eliminate monthly payments
• Are concerned about consumer protections and loan stability

2. Proprietary Reverse Mortgages

Proprietary reverse mortgages, often called "jumbo reverse mortgages," are designed specifically for owners of higher-value homes. These private loans are created by individual mortgage companies rather than the government. They were developed to serve homeowners whose property values exceed the FHA lending limits, allowing access to more of your home equity than would be possible with a standard HECM.

These loans come from private lenders rather than being government-backed. They're designed specifically for homes worth more than the FHA loan limits, which means you could potentially tap into more of your equity.

Key Features:

• Access to more equity: Great for homes valued well above the FHA ceiling, allowing you to tap into more of your home's value.

• Streamlined qualification process: Some proprietary loans have fewer regulatory hoops to jump through, which can mean faster approval and funding.

• Tailored loan options: Lenders may offer features tailored to specific needs, such as loans for condos or second homes that might not qualify for HECMs.

• Different cost structure: The lack of government insurance typically means you'll pay more in interest, though some proprietary loans may have lower upfront fees.

• No mortgage insurance requirement: While these loans lack FHA insurance, they also don't require the mortgage insurance premiums that HECMs do.

• Larger loan amounts: For homes valued at $1.5 million or more, these loans can provide substantially more cash than a HECM.

Who It's Best For?

Proprietary reverse mortgages are ideally suited for seniors who:

• Own homes valued significantly above the FHA lending limit
• Need access to more funds than a HECM would provide
• Have a high-value home with little or no mortgage
• Live in luxury condos or properties that may not qualify for FHA insurance
• Prefer fewer upfront costs in exchange for potentially higher interest rates
• Want to avoid some of the restrictions that come with government-backed loans
• Are comfortable working with private lenders

3. Single-Purpose Reverse Mortgages

Single-purpose reverse mortgages are the most affordable reverse mortgage option and are specifically designed to help seniors with lower incomes address critical needs. These specialized loans are typically offered through state agencies, local governments, or non-profit organizations with a mission to help seniors age in place safely.

These loans are typically offered by state and local government agencies or non-profit organizations. As the name implies, the lender approves their use for only one specific purpose, usually property taxes, home repairs, or accessibility modifications.

Key Features

• Most affordable option: These generally have the lowest fees and interest rates of all reverse mortgage types, sometimes even offering zero-interest deferred payment loans.

• Specific purpose requirement: Funds must be used only for the approved purpose, such as property tax payments, essential home repairs, or accessibility modifications.

• Varies by location: Not offered everywhere and often targeted to lower-income homeowners, with programs differing from state to state.

• Straightforward agreements: Generally easier to understand than other reverse mortgage types, with clear terms and conditions designed for seniors.

• Income-based eligibility: Many programs have income limits to ensure the funds help those most in need.

• Potential for loan forgiveness: Some programs may convert to grants or forgive the loan under certain circumstances, such as continued occupancy for a specified period.

Who It's Best For? 

Single-purpose reverse mortgages are especially beneficial for seniors who:

• Have lower to moderate incomes and limited savings

• Need to address a specific, pressing financial need

• Want the lowest possible costs and interest rates

• Own homes of modest value

• Need critical repairs to maintain a safe living environment

• Are struggling to pay property taxes and face possible foreclosure

• Require home modifications to accommodate mobility issues or disabilities

• Prefer working with non-profit organizations or government agencies

Helpful Tip: Before deciding on any reverse mortgage, talk with a HUD-approved counselor. They'll help you understand which option aligns with your needs without trying to sell you anything.

Checkout EAG's reverse mortgage products if you cant wait to start your journey today!

How the Three Types Compare in Real-World Situations?

To better understand how these three types of reverse mortgages might apply to different homeowners, consider these scenarios:

Scenario 1: Retirement Income Supplementation

Martha, a 75-year-old woman, is the proud owner of a $400,000 home, yet she finds it challenging to balance her expenses with her Social Security income.

• With an HECM, she could establish a tenure payment plan providing about $1,200 monthly for life.
• A proprietary reverse mortgage might not be ideal since her home value doesn't exceed FHA limits.
• Single-purpose options wouldn't help with ongoing income needs.

Scenario 2: Luxury Home with Substantial Equity

Robert and Susan, both 68, own a $2.5 million beachfront property with no mortgage.

• An HECM would be limited by the FHA ceiling, providing access to only a fraction of their equity.

• A proprietary reverse mortgage could allow them to access up to 40% of their home value, potentially providing over $1 million in available funds.

• Single-purpose options would be unlikely to serve their needs given the high property value.

SCENARIO 3: CRITICAL HOME REPAIRS ON LIMITED INCOME

James, 80, lives on a fixed income in a modest $150,000 home that needs a new roof and accessibility modifications.

• An HECM could provide the funds but might be cost-prohibitive given the relatively small loan amount needed.

• A proprietary reverse mortgage would be unnecessary and cost-ineffective.

• A single-purpose reverse mortgage through his state's home repair program would likely be the most affordable option, possibly offering a zero-interest deferred loan specifically for these repairs.

WHY YOU SHOULD TRUST US: ABOUT Equity Access Group

It's worth noting that Equity Access Group (EAG) was recently recognized as #9 in FeedSpot's "Top 20 Reverse Mortgage Blogs" for 2025. Our blog stands out for breaking down complex financial topics into easy-to-understand information.

What makes their content valuable:

• They explain complicated concepts in plain English

• Their advice is backed by industry expertise

• They address real concerns that homeowners and their families have

You can check out the full list of top reverse mortgage blogs on FeedSpot's website.

Do You Qualify? Understanding Eligibility Requirements

Before you get too excited about reverse mortgages, let's make sure you qualify. Here's what you'll need:

1. You must be at least 62 years old. This applies to all borrowers on the title. If your spouse is younger, special rules may apply to protect them.

2. The home must be your primary residence. You need to live in the property most of the year. Vacation homes and rental properties don't qualify.

3. You need significant equity. Most lenders look for at least 50% equity in your home. The more equity you have, the more you might be able to borrow.

4. Mandatory counseling is required. You'll need to complete a session with a HUD-approved counselor who will explain how reverse mortgages work and what alternatives might exist.

5. No federal debt delinquencies. You can't be behind on federal debts like taxes or student loans, though sometimes reverse mortgage proceeds can be used to pay these off.

6. Property requirements must be met. Eligible properties include single-family homes, 2-4 unit properties (if you live in one unit), HUD-approved condos, and manufactured homes that meet FHA standards.

7. Financial assessment is necessary. Lenders will check that you can handle ongoing costs like property taxes, insurance, and home maintenance.

8. Ongoing obligations must be maintained. You'll need to keep up with property taxes, homeowner's insurance, and home maintenance.

If you're not sure whether you qualify, don't worry. A HUD-approved counselor can help you figure it out and explore your options.

COMPARISON TABLE: TYPES OF REVERSE MORTGAGES

Remember, there are alternatives to reverse mortgages worth considering too. Home equity loans, HELOCs, and cash-out refinances all offer ways to tap into your equity, though they require monthly payments.

Weighing the Pros and Cons

Like any financial tool, reverse mortgages have their upsides and downsides. Let's take an honest look at both.

The Good Stuff

• No monthly mortgage payments: This frees up cash flow for other expenses.

• Financial flexibility: You can use the money for almost anything with HECMs and proprietary loans.

• Stay in your home: You can age in place while accessing your equity.

• Non-recourse protection: You'll never owe more than your home is worth.

• Tax-free proceeds: The IRS considers loan advances to be loan proceeds, not income (though consult a tax advisor).

The Not-So-Good Stuff

• Your equity shrinks over time: Interest and fees add up and reduce what's left for you or your heirs.

• Ongoing costs remain your responsibility: You still need to pay property taxes, insurance, and maintenance.

• Your heirs may receive less inheritance: They might need to sell the home to repay the loan.

• Loan amounts may be limited: Depending on your age, home value, and interest rates.

• Potential impact on benefits: Proceeds could affect eligibility for needs-based programs like Medicaid.

• It can get complicated: The terms and conditions can be confusing without proper guidance.

How to Choose the Right Reverse Mortgage

Finding the right reverse mortgage isn't a one-size-fits-all process. Here's how to make a smart choice:

1. Take stock of your needs: Start by getting clear on why you want a reverse mortgage. Do you need ongoing income? A lump sum for a specific expense? Access to funds just in case? Your goals will help narrow down which type makes sense.

2. Do the math: Compare costs carefully. Look at interest rates, origination fees, mortgage insurance (for HECMs), and other closing costs. Ask lenders for a Total Annual Loan Cost (TALC) disclosure to see the projected costs over time.

3. Check your eligibility: Make sure you meet the requirements for the type of reverse mortgage you're considering. Some have stricter guidelines than others.

4. Get expert guidance: Talk to a HUD-approved counselor and consider consulting a financial advisor who specializes in retirement planning. They can help you understand if a reverse mortgage fits into your overall financial picture.

5. Consider your payment preferences: Think about how you want to receive the funds. A line of credit gives you flexibility, while monthly payments provide reliable income. A lump sum might make sense for immediate large expenses.

6. Talk to your family: Have an honest conversation with your heirs about how a reverse mortgage will affect their inheritance. This can prevent surprises and conflicts down the road.

7. Shop around for lenders: Different lenders offer different terms, so get quotes from several. Look for experience, reputation, and customer service as well as rates.

fAQ: Reverse Mortgages

What's the most common type of reverse mortgage?

Home Equity Conversion Mortgages (HECMs) are by far the most popular, making up about 90% of all reverse mortgages. They offer the security of federal insurance along with flexible payment options.

What exactly are the three types of reverse mortgages?

The three types of reverse mortgages are: HECMs (federally insured loans with flexible uses), Proprietary Reverse Mortgages (private loans for high-value homes), and Single-Purpose Reverse Mortgages (lower-cost loans for specific approved uses).

What is the 95% rule with reverse mortgages?

The 95% rule means that borrowers or their heirs will never have to pay more than 95% of the home's appraised value when the loan becomes due. This protection applies even if the loan balance exceeds the home's value due to falling real estate prices or accumulating interest.

Can you give me a real-life example of a reverse mortgage?

Sure! Consider Maria, who is 68 and owns a home worth $400,000 with no mortgage. She qualifies for a $200,000 HECM and chooses a line of credit. She uses $50,000 immediately to renovate her bathroom and kitchen for aging in place, keeping the remaining $150,000 available for future healthcare needs. She makes no monthly payments, and the loan will be repaid when she sells the home or passes away.

What are the biggest downsides to watch out for?

The main downsides include:

• Accumulating interest that reduces your equity over time

• Ongoing responsibility for taxes, insurance, and maintenance

• Potential reduction in inheritance for your heirs

• Possible impact on eligibility for government assistance programs

Making Your Decision

The reverse mortgage that's right for you will depend on a variety of factors, including your age, home value and purpose for the loan. Whether you’re considering HECM, a jumbo proprietary loan on a larger property, or a single-purpose reverse for one thing that you need, knowing the differences is vital.

Having been named one of the Top 20 Reverse Mortgage Blogs, it is clear that the Equity Access Group are serious about providing pertinent information in a difficult industry. Their resources are available to guide you through your options.

Ready to explore whether a reverse mortgage is right for you? Consider scheduling a consultation with a reverse mortgage specialist who can provide personalized advice based on your specific circumstances. The right guidance can help you make a decision that supports your financial security throughout your retirement years.