What Are the 3 Types of Reverse Mortgages?

A reverse mortgage is a unique financial product that allows homeowners aged 62 or older to tap into their home equity. The three main types are home equity conversion mortgages (HECM), proprietary, and single-purpose. Each offers unique features and eligibility requirements.

Understanding the distinctions between these types is crucial to choosing the right one for your situation. Keep reading; we’ll break down the pros and cons of each reverse mortgage option and provide guidance on how to determine which one is best for your financial needs.

Table of Contents

1. The 3 types of reverse mortgages explained
2. Home equity conversion mortgages (HECM)
3. Proprietary reverse mortgages (jumbo reverse mortgages)
4. Single-purpose reverse mortgages
5. Which type of reverse mortgage is right for you?
6. Where to find the right reverse mortgage
7. Alternatives

The 3 types of reverse mortgages explained

A reverse mortgage generally allows homeowners aged 62 or older to convert home equity into loan proceeds, typically without monthly payments. The three types—HECM, proprietary, and single-purpose—are meant for different borrowers and purposes. 

1. HECMs offer federal protections.
2. Proprietary loans serve borrowers with high-value homes.
3. Single-purpose loans are offered for specific uses, such as home repairs or taxes. 

We’ll explore each type below, explaining its pros, cons, and best uses.

Here’s a quick comparison:

HECM	Proprietary	Single-purpose
Age 62+ eligible w/ significant equity and meeting FHA requirements	Generally age 62+ eligible w/ significant equity, but varies by lender	Low-to-moderate income eligible, varies by provider
Borrow up to FHA loan limits ($1,209,750 in 2025)	Loan amounts vary by lender, often exceeds FHA limits	Loan amounts vary by provider
Best used for retirement income or other needs	Best used for retirement income or other needs	Best used for home repairs or property taxes

Home equity conversion mortgages (HECM)

Home equity conversion mortgages (HECMs) are federally insured reverse mortgages available to homeowners aged 62 or older. These loans allow homeowners to convert home equity into cash while continuing to own and live in their homes.

HECMs enable eligible homeowners to access their home’s equity without making monthly loan payments. Borrowers are still responsible for taxes, insurance, and upkeep. The loan is repaid when the home is sold, vacated, or the borrower passes away, aligning with FHA regulations.

Pros

• Supplemental retirement income

  Homeowners can access cash for living expenses, home repairs, or other purposes, making HECMs a viable option for retirement planning.

• No monthly mortgage payments

  Borrowers do not make monthly loan payments, freeing up income for other needs. Loan repayment is deferred until specific conditions, such as selling the home, are met.

• Retain homeownership

  Borrowers can continue living in their homes if they meet the loan’s terms, including maintaining the property and staying current on taxes and insurance.

• Protections against owing more than the home’s value

  The FHA guarantees that borrowers or their heirs will never owe more than the home’s value at the time of sale, even if the loan balance exceeds the property’s worth.

• Protections for eligible non-borrowing spouses

  For HECMs, if there is an eligible non-borrowing spouse, they may be able to remain in the home after the borrower’s death as long as certain conditions are met, such as continuing to pay property charges and maintaining the home.

Cons

• Interest increases the loan balance

  Interest on the loan accrues over time, causing the loan balance to grow. This reduces the equity available for heirs or future use.

• Borrowers must maintain the property

  Even without monthly mortgage payments, borrowers remain responsible for property taxes, insurance, and maintenance. Failing to meet these obligations can result in loan default and foreclosure.

• Reduced inheritance value

  As the loan balance increases over time, the amount of home equity available to heirs decreases, potentially leaving little or no value to pass on to family members.

• Mandatory counseling

  Borrowers must undergo HUD-approved counseling before obtaining an HECM. While this adds time to the process (a potential con), the counseling helps ensure borrowers fully understand the loan terms and their responsibilities, which can help protect against financial mistakes.

• Fewer protections for non-borrowing spouses

  Proprietary reverse mortgages may lack the federal protections afforded to non-borrowing spouses under HECMs, which could leave these individuals vulnerable in the event of the borrower’s death or relocation.

Best for

HECMs are most suitable for homeowners aged 62 or older with significant home equity who need additional income or financial flexibility. This option works well for those who plan to stay in their homes long-term and can manage ongoing property-related expenses.

Proprietary reverse mortgages (jumbo reverse mortgages)

Proprietary reverse mortgages are private loans offered by financial institutions and are not federally insured. Often used for high-value properties, they are sometimes called “jumbo” reverse mortgages. These loans offer flexibility and higher limits compared to FHA-insured options.

Like federally insured reverse mortgages, proprietary ones let homeowners access their home equity without monthly payments. However, they lack protections such as FHA-backed guarantees against owing more than the home’s value or mandatory counseling to guide borrowers.

Pros

• Higher loan limits

  Proprietary reverse mortgages often provide larger loan amounts, making them suitable for homes that exceed HECM loan limits belonging to borrowers with significant equity. 

• Available from various lenders

  Lenders can offer proprietary reverse mortgages at their discretion. Unlike HECMs, which are only available from FHA-approved lenders, you can get proprietary loans from a wide range of financial institutions.

• Flexible loan structures

  Proprietary reverse mortgages often offer more flexible loan structures compared to HECMs. This can include different payout options or loan terms, allowing borrowers to choose the most suitable arrangement for their needs.

Cons

• Lack of federal insurance

  Borrowers are not offered federal guarantees, such as never owing more than their home’s value, which increases potential financial risks.

• Potentially higher costs

  Proprietary reverse mortgages often have higher rates and borrowing costs than FHA-insured loans.

• Limited consumer protections

  These loans may lack safeguards, including mandatory counseling, increasing the risk of borrowers encountering unfavorable terms.

Best for

Proprietary reverse mortgages are well-suited for homeowners who need flexibility or larger loan amounts than FHA-insured products allow. They are ideal for those with high-value homes or unique financial needs who can manage the associated costs and risks.

Single-purpose reverse mortgages

Single-purpose reverse mortgages are loans from some state and local government agencies, as well as nonprofit organizations. These loans allow homeowners to access their home equity for a specific purpose, such as home repairs or paying property taxes.

A single-purpose reverse mortgage allows homeowners to borrow against their home equity for a specific, approved use. Many borrowers use the loan proceeds for home repairs or paying property taxes. These loans tend to have lower costs than other reverse mortgages.

Pros

• Lower costs

  Single-purpose reverse mortgages generally have lower costs than other types, making them more affordable for eligible homeowners.

• Government or nonprofit backing

  Many state or local government agencies and nonprofit organizations offer these loans, which can provide favorable terms to qualifying homeowners.

• Specific purpose funding

  The loan proceeds are for specific needs, such as home repairs or paying property taxes, helping to ensure the funds are used effectively.

Cons

• Limited use

  The loan funds can only be used for specific purposes defined by the provider, limiting flexibility for homeowners who need funds for other expenses.

• Strict eligibility requirements

  These loans are often available only to low- or moderate-income homeowners, meaning not everyone will qualify.

• Availability varies

  Single-purpose reverse mortgages are not available everywhere and depend on local programs or government offerings.

Best for

Single-purpose reverse mortgages are best for low- or moderate-income homeowners who need funds for specific purposes. These loans are ideal for those who meet the eligibility criteria and can use the funds as intended.

If I have a client considering a single-purpose reverse mortgage, recommend they understand what they can use the funds for and what is considered misuse. They should maintain documentation (e.g., receipts and contracts) for the use of the funds.

Erin Kinkade, CFP®

Which type of reverse mortgage is right for you?

Choosing the correct type of reverse mortgage depends on your specific financial goals, home value, and how you plan to use the loan. Each type has unique advantages, so it’s important to evaluate your needs before deciding.

Consider the following questions to help guide you through the process:

• What are your financial needs? If you need consistent income for retirement or help with day-to-day expenses, a HECM might be the best option. However, if you have significant home equity and need a larger loan, a proprietary reverse mortgage could provide a higher payout.
• Do you have a specific use for the funds? If you need the funds only for specific purposes, such as home repairs or paying taxes, a single-purpose reverse mortgage is a solid choice. It’s more affordable but less flexible than the others.
• What is the value of your home? If your property exceeds the FHA limits, proprietary loans offer the ability to borrow more than a HECM.
• What are the eligibility requirements? Be sure to check the eligibility for each type before applying; requirements vary. For instance, HECMs and proprietary loans are often for homeowners 62 and older regardless of income, while single-purpose loans are often for low- to moderate-income homeowners.

When making your decision, weigh your needs for flexibility, loan size, and the type of financial support you require. Understanding your eligibility and the loan terms will help you choose the best option for your situation.

Where to find the right reverse mortgage for you

Finding the right reverse mortgage for you starts with choosing a reputable company that offers the loan types you need, whether a HECM, proprietary, or single-purpose reverse mortgage. Researching and comparing lenders is essential to selecting the best reverse mortgage for your needs.

To help guide your decision, consider the following tips:

• Check loan types: Ensure the company offers the reverse mortgage type you want.
• Read customer reviews: Review other borrowers’ feedback to understand the lender’s reputation and customer service quality.
• Compare rates and fees: Different companies may have varying rates, closing costs, and fees. Compare these to get the best deal.
• Consider experience and support: Look for a company with experience in reverse mortgages that offers excellent customer support throughout the process.

After considering these factors, you’ll be better prepared to choose the lender that meets your needs. The following reverse mortgage companies rate well in our research:

Alternatives to reverse mortgages to consider

If a reverse mortgage doesn’t align with your financial needs or situation, there are other options to tap into your home’s equity while maintaining some financial flexibility. 

Below are two alternatives worth considering: home sale-leaseback agreements and home equity lines of credit (HELOCs). Each option has its benefits, and the right choice depends on your financial goals and circumstances.

Home sale-leaseback

A home sale-leaseback allows you to sell your home while continuing to live in it as a tenant who pays rent. This arrangement differs from a reverse mortgage because you are no longer a homeowner and get a lump sum upfront instead of gradual access to your equity over time.

Why consider it over a reverse mortgage?

• No age restrictions: Reverse mortgages are typically only available to homeowners 62 and older, but home sale-leaseback agreements have no such limitations.
• Avoid interest and loan obligations: With a reverse mortgage, the loan balance accrues interest over time, which could erode your home equity. A sale-leaseback eliminates debt and interest entirely.
• Lump sum access: If you need immediate cash for significant expenses, a home sale-leaseback provides the entire equity upfront.

One potential downside is that you’ll need to budget for monthly rent payments, which may not be ideal for all homeowners. However, it’s a compelling solution for those looking to simplify their financial situation and access their equity without taking on new debt.

Truehold is a standout company in the home sale-leaseback space. It allows homeowners to sell their property while continuing to live in it, providing financial flexibility and peace of mind. Truehold focuses on transparency and helping individuals unlock their home’s value without the complexities of traditional lending options.

Read More

Best Home Sale-Leaseback Companies 

HELOC

A home equity line of credit (HELOC) is a revolving credit line secured by your home’s equity. It’s similar to a credit card, allowing you to borrow funds as needed during the draw period, repay them, and borrow again. 

Unlike a reverse mortgage, a HELOC doesn’t require you to give up ownership of your home, and you retain more control over how and when you access your equity.

Why consider it over a reverse mortgage?

• Flexibility: With a HELOC, you can draw funds as needed rather than committing to a lump sum or scheduled payments, giving you more control over your borrowing.
• Lower upfront costs: HELOCs generally have fewer fees and closing costs than reverse mortgages.
• No age requirement: Unlike reverse mortgages, HELOCs are available to homeowners of all ages, provided they meet income and credit score requirements.

However, a HELOC comes with monthly repayment obligations, which can be a challenge for retirees with limited income. A HELOC is not a fixed loan and often comes with variable interest rates that can increase over time.

Figure is a top choice for HELOCs, offering a fast online application process. It provides competitive fixed rates and quick access to funds, making it an excellent option for homeowners seeking a modern, convenient way to tap into their home equity. Figure’s streamlined approach helps you access the money you need without lengthy delays or complicated paperwork.