Proprietary Reverse Mortgage

Watch a lot of daytime TV? Game shows, reruns of 1970s sitcoms, talk shows...all punctuated by commercials for diabetes supplies and reverse mortgages.

Reverse mortgages allow older homeowners to draw an income by cashing in the equity they have in their homes. Under a normal mortgage, you pay the bank a certain amount every month and, over time, build up equity in the home. A reverse mortgage involves the opposite process: a company sends you a check every month, with your equity diminishing over time.

Most of these reverse mortgages fall into a category called "home equity conversion mortgages," or HECMs. These come with a lot of guarantees and regulatory scrutiny. They're closely watched by authorities. However, there's another type: the proprietary reverse mortgage. It's the Wild West of the industry. These deals don't have the same tight controls as the HECMs, which creates more risk. However, they allow more latitude.

The main reason someone would choose a proprietary reverse mortgage relates to the size of the loan. HECMs have a cap on the amount. But since the proprietary version exists outside the regulatory framework, those deals can have any amount.

Got a $20 million house, but for some reason need a steady monthly income? A proprietary reverse mortgage might be for you.