Imagine this, you sit down to plan your retirement and realize you have more home equity than you ever imagined. No, you did not win the lottery and no, you are not the beneficiary of an inheritance. Thanks to low interest rates, your home’s value have risen enough for you to generate a significant amount of cash by taking out a reverse mortgage. However, you quickly realize that a regular reverse mortgage just won’t cut it. It maxes out at $822,375 and that leaves you with a large shortfall of funds to help support your retirement.
That is where jumbo reverse mortgages come in!
What is a jumbo reverse mortgage?
A jumbo reverse mortgage is a type of proprietary reverse mortgage that allows seniors 62 and over to tap into the equity in their homes. A jumbo reverse mortgage is not federally insured and doesn’t have the same lending limits as regular HECM reverse mortgage loans. The funds can be used for any purpose including debt consolidation, home improvements, or medical expenses.
It offers a larger amount of home equity in a high-value property versus the Home Equity Conversion Mortgage (HECM) program, which is regulated by the federal Department of Housing and Urban Development (HUD). The higher loan limits make it a popular choice for seniors looking to tap the equity in high-value homes.
Pros of Jumbo Reverse Mortgage
What are the unique benefits of Jumbo Reverse Mortgage loans?
Access to a much higher loan limit
A jumbo reverse mortgage provides borrowers with access to much more equity in their homes than the traditional HECM reverse mortgages. Jumbo lenders can extend up to 95% LTV (Loan to Home Value). The current lending limits for a Jumbo reverse mortgage can be much higher than that of a traditional reverse which is currently capped at $822,375 in 2021. The actual loan limits vary between different lenders.
No mortgage insurance premiums
Jumbo reverse mortgages are not federally insured. Jumbo lenders do not require mortgage insurance premiums to secure their loan which can save a borrower a considerable amount of money over the life of the loan. Despite the higher fees, borrowers benefit from this loan in the long run because of the tax benefits associated with them.
Get rid of large previous debts
The larger loan amount you get with a jumbo reverse mortgage helps borrowers pay off larger amounts of existing debts. Although an FHA HECM can help you refinance small mortgage debts, a jumbo reverse mortgage may be used for refinancing much larger amounts — in the range of hundreds of thousands of dollars or even more. This is fantastic news if you live in a high-cost area.
Solid borrowers protections
Jumbo reverse mortgages come with a considerable number of protections for borrowers. Jumbo lenders must follow the same disclosure requirements as those required by HUD under HECM rules. Most lenders offer a non-recourse jumbo which protects borrowers if the value of the property falls below their Jumbo Reverse Mortgage. Be sure you ask your specialist for specific borrower protection programs that are available.
Cons of Jumbo Reverse Mortgage
Some of the things to look out for with Jumbo Reverse Mortgage loans
Higher interest rates & fees
Jumbo reverse mortgage interest rates are higher compared to those for a traditional HECM. Jumbo lenders usually charge loan closing fees, prepayment penalties, and service charges on Jumbo Reverse Mortgage. Jumbo mortgages typically have a 3% to 5% origination fee. However since Jumbo does not require mortgage insurance, this can offset the other added costs and reduce the overall cost of your loan.
NO FHA Insurance
You have no government-backed insurance with Jumbo Reverse Mortgages. This can increase the risk to Jumbo lenders if you default on your loan. This loan is not backed by the FHA or HUD, which means that Jumbo reverse mortgage holders may owe more than their homes are worth.
Complicated loan process
Jumbo reverse mortgages involve a complicated loan process since Jumbo lenders require borrowers to provide extensive documentation and financial records as compared to those required for a regular HECM. Jumbo Reverse Mortgage Lenders may also need bank statements, tax returns, and other records of income and assets.
Heirs Could Inherit Less
If you die with Jumbo Reverse Mortgage debt outstanding, your heirs could inherit less because Jumbo reverse mortgage debt is treated similarly to other unsecured debts.
Furthermore, a reverse mortgage drains the equity from your property. There may not be any equity left to pass on to your heirs by the time it has to be paid off.
History and current market outlook for jumbo reverse mortgages
Jumbo reverse mortgages began in the early 2000s as an alternative to federal reverse mortgage programs that were growing more restrictive. Jumbo lenders can extend up to 95% LTV (Loan to Home Value). The current lending limits for a Jumbo reverse mortgage can be much higher than that of a traditional reverse which is currently capped at $822,375 (2021).
Jumbo Reverse Mortgages have grown in popularity as a result of the large increase in home value in recent years. It offers financial flexibility as you can use the money as needed and don’t have to pay interest or principal on the loan as long as you continue to live in the home. A jumbo reverse mortgage has also proven to be a better loan option for seniors with large amounts of debt.
Jumbo vs HECM
Can you get a jumbo reverse mortgage line of credit?
Yes, a Jumbo Reverse Mortgage Line of Credit is an excellent option for those who want another option to access the value locked in their home. The interest rate on a line of credit is very reasonable when compared to a HELOC. Some lenders now offer a line of credit with a 1.5% growth rate.
Is a JUMBO Reverse Mortgage better than a HELOC?
JUMBO Reverse Mortgages are structured differently from HELOCs. The Jumbo Loan is a lump sum of cash whereas with a HELOC borrowers have the ability to access multiple draws throughout the course of their retirement years. The Jumbo loan does not require monthly interest payments, whereas with a HELOC borrowers make monthly interest and principal payments.
Are there restrictions on how to spend your jumbo reverse mortgage?
There are no restrictions on how Jumbo Reverse mortgage borrowers can spend the money. Jumbo Reverse Mortgage borrowers have the flexibility to pay for any expense through the Jumbo Loan proceeds they receive. A jumbo reverse mortgage is meant to be a long-term financial solution for retirees since borrowers are not required to make payments while they live in their homes.
How to find the best jumbo reverse mortgage rates?
The best way to find Jumbo Reverse Mortgage rates is to shop around or consult trusted a reverse mortgage consultant that has a track record of success in helping seniors.
The Bottom Line
Should you get a jumbo reverse mortgage?
Jumbo Reverse Mortgages are a great option for borrowers who have sizeable home equity in high-value homes. Jumbo proprietary reverse mortgages provide many benefits to homeowners who want to access their equity. Lenders can offer up to 95% LTV, no mortgage insurance premiums, and the ability to refinance large existing debts. There’s never been a better time than now to use the equity built up in your home to live well today while preparing for tomorrow. If you have additional questions or are interested in finding out more be sure to contact Jeannette Macias at (805) 738-5577.