What is A Jumbo Reverse Mortgage?
While the Home Equity Conversion Mortgage (HECM) loan program covers the reverse mortgage needs for many reverse-eligible borrowers, it does come with certain restrictions. One of the biggest of these is the restriction on the maximum home value (also referred to as maximum lending limit). Regardless of a home’s actual appraised value, the maximum allowed value when it comes to determining the eligible loan amount on the HECM, as of 2023, is $1,080,300. Thus, even if your home has a value of $1,500,000, the qualifying loan amount will only be based on the $1,080,300. This restricts the amount of funds potentially available to you.
The jumbo reverse mortgage – sometimes referred to as, simply, a reverse mortgage, will allow home values up to $10,000,000 with a maximum loan amount as high as $4,000,000.
Additionally, a HECM requires a minimum borrowing age of 62, while many states offer a jumbo reverse mortgage with a minimum age as young as 55 (please check your state’s limits as they do vary). In Arizona and California, as an example, the minimum age for this program is 55.
What Are the Benefits of a Jumbo Reverse Mortgage?
There are several benefits of obtaining a jumbo reverse mortgage, including:
- High loan limits: If you have an expensive home, a jumbo reverse mortgage enables you to access more cash than you would through a HECM. As previously mentioned, loan amounts on jumbo reverse mortgages can go as high as $4,000,000.
- No monthly payments: As with all reverse mortgage programs, the jumbo reverse mortgage does not require the borrower to make a monthly mortgage payment for as long as the home is used as the primary residence.
- Lower Costs: Unlike the HECM. a jumbo reverse mortgage does not require up-front or monthly MI (mortgage insurance) premiums. The result is substantial savings in closing costs. However, like the HECM, this is still a non-recourse loan.
- Less Restrictive: Because these are not FHA insured loans, there are less restrictions when it comes to home type and scrutiny. For example, there may be certain items that come up in an FHA appraisal that will require a ‘cure” prior to final approval that may not necessarily be required with a jumbo reverse. Another example: condos need to be FHA approved for the HECM, while this is not a requirement for the jumbo.
How Much Can I Borrow with a Jumbo Reverse Mortgage?
As with the HECM, the amount you will be able to borrow with a jumbo reverse mortgage will vary based on your age, the home’s value, the current rate, and the specific type of loan program. For example, typically more money is available on the Adjustable loan product than on the fixed-rate loan. However, loan amounts can go as high as $4,000,000 – a substantial difference from the HECM loan.
Is It Possible to Refinance My Existing HECM Into a Jumbo Reverse Mortgage?
The simple answer is: Yes. However, It will depend on how much your home has appreciated in value over time and whether your needs and circumstances allow you to benefit from going with the jumbo program versus staying with the HECM.
Refinancing your existing HECM to a Jumbo Reverse Mortgage may significantly increase your borrowing power by giving you access to cash when you need it. Or it may allow you to tap into more of your home’s equity to establish a larger line of credit, making more of your home’s equity available to you in the future as needs arise.
Jumbo Reverse Limitations
While there are some clear financial incentives and advantages to going with a jumbo reverse, there are also some restrictions in flexibility when compared to the HECM.
One example of this is with the Line of Credit option (LOC). With the HECM, the line of credit available balance grows in line with the interest rate being charged. It also remains with the loan for as long as the reverse mortgage is open, and the home is being used as the primary residence. With the Jumbo programs LOC, there is no growth in the loan amount (no accrued interest), and it has a maximum 10-year term.
Another significant difference is when it comes to the available loan options and their flexibility. With the HECM, you can choose among three disbursement options: lump sum, LOC, and monthly tenure payment – or combine these options based on availability of funds. Additionally, these can be moved around and switched throughout the life of the loan. The jumbo product does not offer a tenure payment, nor does it allow the ability to make changes once the loan has been funded.
When determining which loan program works best for you and your specific needs, please reach out to me and let’s discuss your goals and needs – both now and for the future.