Types of Reverse Mortgages
There are 2 main types of reverse mortgage loans:
- Federally-Insured Reverse Mortgages
More commonly known as Home Equity Conversion Mortgages (HECM), the HECMs are insured by the federal government. The U.S. Department of Housing and Urban Development (HUD) helps make these reverse mortgages, widely available. There are no credit or income requirements. There are property value limits on these loans. Keep in mind that the government does not make the loan, they just insure the loan that is made by a private bank. This type of loan makes up almost the entire reverse mortgage market at over 95% of the market.
The insurance the government provides protects the borrower in the event that the lender is not able to make the reverse mortgage payment or if the value of the home has declined to the point where it cannot pay off the loan balance.
Proprietary Reverse Mortgages
All other types of reverse mortgages are private loans with different features from corporations and banks. For example, Wells Fargo, One Reverse and Financial Freedom each have their own types of reverse mortgages.