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Jumbo Reverse Mortgages: What You Need to Know
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Seniors younger than 62 living in higher-priced homes with significant equity may be able to tap up to $4 million with a jumbo reverse mortgage. The funds can be used to meet changing healthcare needs or to replace a regular mortgage with one that doesn’t require a monthly payment. While jumbo reverse mortgages have a lot in common with traditional reverse mortgages, the differences are worth knowing to make sure they’re a good fit for your financial plans.
What is a jumbo reverse mortgage?
A jumbo reverse mortgage is a program offered by private lenders that allows you to borrow more than the Federal Housing Administration’s (FHA’s) Home Equity Conversion Mortgage (HECM) loan limits. The “maximum claim amount” for 2021 for the HECM program is $822,375 for all parts of the country.
Any reverse mortgage amount above the FHA HECM loan limit would require a jumbo reverse mortgage. However, you still have to meet the basic reverse mortgage requirements which means:
- You must live in the home you’re financing as your primary residence
- You must have enough equity to cover your current loan balance and any cash you want
- You’ll need to prove you can pay your property taxes and insurance
- You must maintain your home
Pros and Cons of a jumbo reverse mortgage
You can get a bigger lump-sum payout or line of credit. Jumbo reverse mortgages allow you to borrow up to $4 million in a lump sum or with a line of credit, giving you more borrowing power for other financial goals.
You won’t pay mortgage insurance. Because jumbo reverse mortgages aren’t insured by any government agency, you pay the FHA upfront mortgage insurance fee of 2% of the loan balance, plus an ongoing insurance premium that rises as your loan balance increases.
You can qualify for a reverse mortgage at a younger age. FHA’s HECM minimum age is 62, but proprietary reverse mortgages allow you to borrow once you turn 60.
Your interest rate will be higher than a regular reverse mortgage. Although this won’t have an impact on your monthly budget because you don’t have a payment, a higher interest rate means your equity will drop at a faster pace as your loan balance grows. If home values drop, you could end up with a home worth less than what you owe.
You may not have the same legal protections. Jumbo reverse mortgage guidelines are set by private companies, which could leave you at a higher risk of foreclosure or even leave your heirs stuck with the bill if your home is worth less than the loan balance when you die.
You may be more likely to be a reverse mortgage scam victim. Because jumbo reverse mortgage guidelines aren’t set by the FHA, it may be easier for unscrupulous reverse mortgage scam artists to take advantage of elderly borrowers. Watch out for any reverse mortgage pitch that tries to bundle home repair services, stock market investments or claims that you can’t lose your home if you take their reverse mortgage loan out. If you think you’ve been a victim of a reverse mortgage scam, submit a complaint with the Consumer Financial Protection Bureau (CFPB).
How to find the best jumbo reverse mortgage rates
Shopping for a mortgage is even more important when you’re borrowing millions of dollars secured by your home. If you’re not sure whether you’re getting a good deal, it may be worth it to run the terms by a HUD-certified housing counselor. It’s not required on a jumbo reverse mortgage, but it may be worth the small fee to get a second opinion before you borrow millions of dollars worth of your equity with a reverse mortgage.
Should you get a jumbo reverse mortgage?
If you own an expensive home and owe very little or don’t currently have a mortgage, a jumbo reverse mortgage can be a powerful financial tool.
A jumbo reverse mortgage makes sense if:
- You want to pay off your current jumbo loan. If you’re carrying a jumbo loan balance and the payment is becoming unaffordable, a jumbo reverse mortgage can be used to pay it off.
- You understand how the higher interest rates affect your equity. Jumbo reverse mortgage interest rates tend to be higher than FHA-insured reverse mortgages, which means your loan balance will grow faster over time. If you can accomplish your financial goals with a loan balance that meets the HECM limits, you’ll leave more of your equity alone.
- You need some extra cash for retirement. Whether you’re padding an underfunded retirement account or planning ahead for assisted living help in your home, jumbo reverse funds may provide an added safety net to maintain your lifestyle as you grow older.
- You’re remodeling your home to meet changing health and age needs. Reverse mortgage funds can be used to cover the cost of home improvement safety upgrades so you can safely age in place.
- You understand the protections available from your lender. Most reverse mortgages provide built-in protections that keep you from paying the difference if your loan balance rises higher than your home’s value. Or allow a spouse that’s not on the loan to stay in the home after you pass away as long as the home is maintained and taxes and insurance are paid. Jumbo reverse mortgages typically offer similar safeguards but make sure you ask your loan officer if to be sure.