What if you don’t qualify for the HECM? You have unpaid tax liens and have turned up on CAIVRS. Your spouse is only 60 years old. You have a $2 million home and want to borrow $1 million. There are private lenders willing to make reverse mortgages that don’t fall under HUD’s guidelines. For example, one reverse mortgage lender offers mortgages on homes valued between $500,000 and $6 million.
When borrowing with a jumbo reverse mortgage, keep a couple of things in mind:
Reverse mortgage counseling is not required, because these are not government-backed loans. However, the fees on these products are not regulated as HECM charges are – it is smart, therefore, to work with a reverse mortgage counselor when shopping for a proprietary reverse mortgage. You can find HUD-approved reverse mortgage counselors through the National Council on Aging. Counseling costs $125. For individuals whose income is less than $1,000 per month, the counseling is free.
Because fees are not limited by the government, shopping for your reverse mortgage is crucial. Get a TALC disclosure and Good Faith Estimate from every lender you consider. Go through them carefully, with the help of a counselor if necessary.
- Proprietary reverse mortgages may come with some unusual arrangements. For example, equity sharing provisions allow the lender to take a portion of your home’s appreciation during the loan’s term as part or all of its compensation. This can be a very good or very bad deal for you, depending on how much your property appreciates. For example, say that you borrow $50,000 against your $500,000 home, and you have agreed to give the lender half of your appreciation. If your home appreciates by four percent per year, and you sell the home in five years, your interest rate ends up being nearly 16%! On the other hand, if you home does not appreciate during that time, you get an interest-free loan. Equity sharing provisions (also called shared appreciation mortgages or SAMs) are less popular today, but you might encounter them.
Whatever rates, costs and terms proprietary reverse mortgage lenders offer, it’s crucial that you understand them before taking one on. Check with a reverse mortgage counselor or your financial advisor before committing to a lender.