HECM

When most people say "reverse mortgage" what they usually mean is "home equity conversion mortgage" or "HECM". There are other types of "proprietary" reverse mortgages that are not HECMs but they are not very popular.

The FHA increased HECM limits
to $625,500 in 2008

Home Equity Conversion Mortgage

"HECM" refers specifically to reverse mortgages that are insured by HUD and the FHA. HUD is the Department of Housing and Urban Development and the FHA or Federal Housing Administration is a part of HUD.

100% of all reverse mortgages issued in 2009, and 99% of all volume in 2008 have been HECMs. The reason is that the FHA's HECM program offers the highest loan amount and the lowest interest rate for most homeowners. The FHA program has special requirements such as a HUD counseling requirement and a ceiling on the property value.

The HECM property value ceiling is $625,500 nationally. This means that if a home is appraised for $1,000,000 and the homeowner chooses a HECM, their loan amount will be based on a value of $625,500 instead of $1,000,000.

Proprietary or "jumbo" reverse mortgages

There are currently only one jumbo program available due to the financial market situation.

Because the HECM program caps the property value at $625,500 for calculation purposes, proprietary programs were created by individual banks for properties worth up to $2,500,000 (and sometimes higher). These jumbo reverse mortgages have a higher interest rate and the loan limits are a lower percentage of the home value.

For example, a 72 year-old homeowner is able to borrow 16% of his property value under a jumbo reverse mortgage versus 60% under the HECM.