What is a Proprietary Reverse Mortgage?
A Proprietary Reverse Mortgage (PRM) is a non-FHA reverse mortgage. It is also referred to as a “Jumbo Reverse Mortgage”, but there are many situations that using a PRM makes sense even if the home is not considered “Jumbo”.
There are Pluses and there are Minuses to a PRM. Also, there are some different guidelines and rules that are followed when compared to a HECM.
- Both the PRM/Jumbo and the HECM have the “Non-Recourse” provision written into the Mortgage. This is a good thing and protects the homeowner, the heir and the lender.
- Both the PRM and the HECM require a Financial Assessment, acceptable credit history and income.
- FHA puts a cap on the value used in HECM calculations at $970,800. As an example, if your home is worth $3 Million dollars, the usable value with a HECM is capped at $970,800. Don’t panic, no one is saying your home is only worth that amount, Congress allows FHA to use this Maximum Claim Amount (MCA) in a HECM calculation. On the other hand, a PRM or Jumbo Reverse allows us to use the actual value of the home. There is a lot of unused equity that continues to be yours and will be passed to your heirs.
- Since a PRM is a non-HECM loan, there is NO MORTGAGE INSURANCE. A HECM requires an Initial Mortgage Insurance Premium (IMIP) of 2% of the appraised value to be charged at closing. If you own a $600,000 home, the IMIP collected at closing for a HECM is $12,000. This IMIP is the main reason closing costs are higher than what folks would otherwise expect. FHA also collects .5% annually by adding it to the outstanding balance. Bottom line, with a PRM the Closing Costs are lower.
- The minimum age of a homeowner through the HECM product is 62. The minimum age of a homeowner using a PRM is 60 years old!
- The percentage of home value that can be accessed using a HECM is greater than what a PRM allows. This means that percentage-wise, you’ll have access to more money through the HECM.
- The interest rate charged on a PRM is almost always higher than the rate that can be secured using a HECM.
The above is meant to simply highlight a few of the differences between both products. By visiting with a Certified Professional, they’ll automatically review both options, share their findings and recommend the product is to your best advantage. Statistically speaking, the HECM is much more common (97% of the reverses are HECM at this time) and generally a better approach to the Reverse Mortgage arena. This is why Colorado Reverse Mortgage’s website primarily focuses on the HECM product. However, if we determine the PRM/Jumbo Reverse is the “makes-sense” option, we’ll certainly present you with choices.