I have seen many people who believe that reverse mortgage won’t get them the right value of their home. These people might not have heard about Jumbo Reverse Mortgage, a specialized program for people who own a high-end house.
And here, I am going to tell you what jumbo reverse mortgage exactly is and whether it’s the right product for you or not.
Let’s get started:
If you own a high-value home and you are planning to get a reverse mortgage, the traditional HUD Home Equity Conversion Mortgage (HECM) may not give you the most value.
This is where Jumbo Reverse Mortgages come into the picture.
FHA-backed reverse mortgages are not available to homeowners who own houses worth multi-million dollars. Also, with traditional reverse mortgages, the maximum amount you can borrow is limited to $726,525 in 2019. But if your home equity is more than $726,525, you may look into Jumbo Reverse Mortgages.
Jumbos are designed for seniors who own a home worth $1,000,000 or over or non-FHA-approved condominium worth more than $500,000.
Jumbo reverse mortgages share many similarities to traditional reverse mortgages, with some significant distinctions.
Thus, before you decide on a Jumbo Reverse Mortgage, it is important to educate yourself with the pros and cons of Jumbo programs, and what makes them different from the traditional HECM.
What Is A Jumbo Reverse Mortgage Loan?
With jumbo reverse mortgages, seniors can borrow up to $6 million worth of home equity. The exact amount depends on the borrower’s age, the value of the house, and how much the borrower owes on the property.
Since Jumbo reverse mortgage lenders are not FHA guaranteed, lenders don’t necessarily follow FHA guidelines about loan size. Instead, they mimic FHA protections and provide their version of the guidelines.
The FHA-guaranteed reverse mortgage involves a large upfront mortgage insurance premium (MIP) of 2% of the loan value. Borrowers also pay an annual MIP charge of 0.05% of the loan balance.
But a jumbo reverse mortgage doesn’t carry these insurance charges, though lenders of jumbos may charge underwriting fees between 1% and 2% of the house’s appraised value. As the fee adds up, the upfront costs of jumbo and traditional reverse mortgages end up being similar.
As of March 2018, there are three versions of Jumbo Reverse Mortgage:
- Wealth management tool for financial planners
- Purchase financing option for real estate agents and buyers
- Homeowners looking to make better use of their house’s value
With these three options, homeowners can choose between accessing and preserving home-based wealth.
THE PROS OF JUMBO REVERSE MORTGAGE:
No Larger Loan Balance
Many borrowers use jumbo reverse mortgage proceeds to eliminate monthly mortgage payments while allowing seniors to live in a high-cost of area. While with a traditional reverse mortgage, borrowers can refinance small mortgage balances, jumbo products allow borrowers to refinance mortgage balances of several hundred thousand dollars.
No Insurance Premiums
Since payments are not FHA-guaranteed products, borrowers don’t need to pay upfront or ongoing mortgage insurance premiums.
Most jumbo reverse mortgages are non-recourse loans. If your loan balance adds up to be higher than your home’s value, you don’t pay the difference. The mortgage lender absorbs the loss on their own.
Moreover, the eligible non-borrowing spouse can reside at the property as long as they are physically able. As long as you continue paying property taxes, insurance premiums, and maintenance expenses, you can stay in your home.
However, this protection is not guaranteed. You must ask your lender if their product is a non-resource loan. Also, read the protection policies in the contract carefully.
Fixed Rate Loans
Currently, jumbo reverse mortgages are fixed loan, which means your loan size will increase at a predictable rate. So, borrowers don’t have to worry about increasing interest rates.
THE CONS OF JUMBO REVERSE MORTGAGE:
No FHA Insurance
Probably the biggest con of jumbo reverse mortgage is the lack of a federal guarantee. FHA-insured reverse mortgages come with guaranteed loan proceeds and protect defaulters. This is the one of the best pros of FHA reverse mortgage.
On the other hand, lenders of jumbo reverse mortgage lenders provide their own version of insurance and protection policy.
Loan Balance Adds Up Over Time
Like with a reverse mortgage loan, mortgage balance with a jumbo reverse mortgage also increases over time. So, it’s possible to owe more than your home’s value. If you want to leave the house to your heir, be careful with this type of loan.
Must Pay Taxes, Insurance And Maintenance Costs
Though a jumbo reverse mortgage eliminates the monthly mortgage obligation, you must continuously pay taxes, insurance, and maintenance costs for your property. Failing to make these payments could be forced out of your home.
No Flexible Payment Options
With FHA-guaranteed reverse mortgages, borrowers can obtain the payment every month or choose a line of credit. These options are not available with jumbo reverse mortgages. Borrowers have to take the entire loan proceeds right away. You have to use those proceeds throughout your retirement carefully.
Higher Interest Rates
The interest rate on the jumbo reverse loan is approximately 2% higher than traditional reverse mortgages. The higher interest rate means your home equity will disappear faster.
Having had detailed knowledge of what makes Jumbo Reverse Mortgage different from FHA-insured reverse mortgages, it’s time to evaluate whether this is the right product for you or not.
Is Jumbo Reverse Mortgage The Right Option For You?
If the value of your home is $1,000,000 or more, and you want to access your home equity, a jumbo reverse mortgage can be a great option for you. It is an excellent option to use your home’s value to supplement your financial resource throughout your retirement.
Make sure you consult with a reverse mortgage specialist before finalizing with a jumbo reverse mortgage.