HECM vs. Proprietary Reverse Mortgages: Full Comparison Guide

Choosing the right reverse mortgage starts with understanding the two main categories: the federally insured Home Equity Conversion Mortgage (HECM) and proprietary (private-label) reverse mortgages. Both allow homeowners to convert home equity into usable funds with no monthly mortgage payments, but they differ significantly in cost, structure, protections, and who they serve best.

This guide provides a comprehensive feature-by-feature comparison to help you determine which type aligns with your home, finances, and retirement goals.

Complete Comparison Table

FHA Insurance: What You Get and What It Costs

The most fundamental difference between the two products is FHA insurance. With a HECM, you pay mortgage insurance premiums in exchange for two powerful guarantees:

1. Non-recourse protection — you or your heirs will never owe more than the home is worth, even if the loan balance exceeds the home value. The FHA insurance fund absorbs the difference.
2. Lender-default coverage — if your lender goes out of business, the FHA ensures your loan terms and payments are honored.

These protections come at a cost: 2% upfront and 0.5% annually on the outstanding balance. On a home at the FHA limit, the upfront MIP alone is roughly $22,997, and the annual MIP accumulates on the loan balance for the life of the loan.

Proprietary products eliminate these premiums entirely, which can result in meaningful cost savings. However, borrower protections depend entirely on the terms each lender chooses to include in the loan agreement.

Lending Limits and Available Equity

The FHA lending limit is the clearest dividing line between the two products. For a homeowner with a $750,000 property, the HECM captures essentially all of the available equity in its calculation. For a homeowner with a $3 million property, the HECM ignores roughly two-thirds of the home's value.

Here is a simplified illustration of how available proceeds might differ for a 72-year-old borrower at various home values (actual amounts depend on interest rates and individual factors):

Note: These are illustrative estimates only. Actual loan amounts vary based on age, interest rates, and lender-specific calculations.

Payment Options and Flexibility

The HECM offers the widest range of payment options of any reverse mortgage product: lump sum, line of credit, tenure and term payments, and combinations thereof. Borrowers can also switch between plans after closing.

Proprietary products typically offer lump sum and line of credit options, though the exact menu varies by lender. Monthly payment plans (tenure and term) are less commonly available in the proprietary market. If ongoing monthly income from your reverse mortgage is a priority, the HECM is likely the better fit regardless of your home value.

Counseling and Consumer Protection

The HECM's mandatory HUD counseling requirement is designed to ensure borrowers fully understand the product before committing. The counseling session covers loan mechanics, costs, alternatives, and implications for heirs. This consumer protection layer does not exist as a federal requirement for proprietary products.

Some proprietary lenders voluntarily recommend or require counseling, but many do not. If you are considering a proprietary product, seeking independent counseling on your own, even if not required, is a prudent step.

Ideal Borrower Profiles

HECM Is Usually Better If:

• Your home is valued at or below the FHA lending limit
• You want the strongest borrower protections, backed by the federal government
• Monthly tenure or term payments are part of your plan
• You value the growing line of credit feature
• You want the flexibility to change payment plans after closing
• You prefer a highly standardized, well-regulated product

Proprietary Is Usually Better If:

• Your home is worth significantly more than the FHA limit, and you need access to that additional equity
• You want to avoid FHA mortgage insurance premiums
• You are between 55 and 61 (in states where proprietary products allow younger borrowers)
• Your property does not meet FHA eligibility requirements (e.g., non-approved condos)
• You primarily need a lump sum or line of credit, not monthly payments

Can You Have Both?

No, you cannot have a HECM and a proprietary reverse mortgage on the same property simultaneously. However, it is possible to refinance from one type to another if your circumstances change, such as if your home value increases enough to warrant switching to a proprietary product, or if you want to move from a proprietary loan to a HECM for its additional protections.

The Bottom Line

The HECM and proprietary reverse mortgage serve different segments of the market, and neither is universally superior. The HECM offers more protections, more payment options, and greater standardization at the cost of FHA insurance premiums and a lending limit that caps how much equity you can access. Proprietary products offer higher loan amounts and no MIP, but with less regulation and more variability between lenders. Your home value, age, desired payment structure, and appetite for borrower protections should drive the decision. For many homeowners, consulting with both a HECM lender and a proprietary lender, then comparing the two proposals side by side, is the most effective way to find the right fit.