Also known as private reverse mortgages or proprietary reverse mortgages, a jumbo reverse mortgage loan is a loan that exceeds the maximum allowed by the U.S. Department of Housing & Urban Development's (HUD) Home Equity Conversion Mortgage (HECM) program. These mortgages aren't regulated by HUD, and they don't come with standard fees and terms. Lenders set maximum reverse mortgage limits and may cap them anywhere from $2 million to $6 million, with interest rates ranging upwards of 6 percent plus additional fees. If you're interested in jumbo reverse mortgages, keep these points in mind.
Immediate Access to Funds with Jumbo Reverse Mortgages
Reverse mortgages let homeowners aged 62 and older to borrow against their home equity. But, reverse mortgages got a bad reputation during the financial crisis of 2008-2009 when home values plummeted, and the government had to compensate lenders for the difference between original loan amounts and house values.
As government regulations tightened in response to the financial crisis fallout, the Reverse Mortgage Stabilization Act of 2013 limited the amount of money that FHA insured reverse mortgage borrowers can access in the first year of the mortgage to 60 percent, unless it's to pay off a mandatory debt such as an existing mortgage. This ensures there's money to pay property taxes and home insurance, both requirements of reverse mortgages. It also makes government-backed reverse mortgages less flexible for borrowers who require immediate access to more funds.
Private Reverse Mortgage Limits Higher Than Government Backed Reverse Mortgages
Currently HECM reverse mortgage limits are based on a portion of the lesser of the appraised value of the home, a portion of the sale price, or the HECM FHA mortgage limit of $625,000. So even if your house is valued at much more, the most you can borrow under this program is $625,000. The reverse mortgage maximum loan-to-value ratio is often between 35 to 50 percent of the home's value.
Because maximum reverse mortgage limits from private lenders are set by the lenders themselves, homeowners with multi-million dollar homes could potentially borrow millions as a reverse jumbo mortgage. However, it's important to note that these mortgages may be costly as the interest rates may be higher than the HECM mortgage rates, and there are also additional fees and service charges.
Who Benefits From a Jumbo Reverse Mortgage?
One of these mortgages may be the answer for homeowners in need of cash, over the age of 62, with significant equity in a principal residence valued over $625,000. The proceeds of a reverse mortgage may be distributed in the form of a lump sum, a monthly amount, or via a line of credit.
Medical bills such as in-home care, the opportunity to purchase an investment property, updating or modifying a home to be senior-friendly, or investing in a family member's business are scenarios where a jumbo reverse mortgage could provide the immediate cash you require.
If you're considering a jumbo reverse mortgage, do your research and shop around before signing on the dotted line to make sure you get the best deal for your situation.