What Is a Jumbo Reverse Mortgage?
A jumbo reverse mortgage is a supersized reverse mortgage that lets older owners of high-value homes borrow up to $ 4 million of the equity in their property. These loans, also referred to as “private” or “proprietary” reverse mortgage loans, are not bound by the same regulations as government-backed home equity conversion mortgages (HECMs), resulting in higher borrowing limits (hence the name jumbo), but also potentially fewer protections.
- Jumbo reverse mortgages cater to older people who own high-priced property, are short of cash, and require access to more of their home equity than what government-insured reverse mortgages permit.
- Eligibility requirements vary, although common conditions include the borrower owning over 50% of their home equity, living in the home as a primary residence, and being at least 55 years old.
- The amount you can borrow generally depends on the appraised value of your home, the amount of equity you own in the property, and your age.
- Generally, the recipient of a reverse mortgage is not required to return the amount borrowed plus interest for as long as they live in the home.
- Less regulation means jumbo reverse mortgage terms can differ considerably from one lender to the next.
How a Jumbo Reverse Mortgage Works
Jumbo reverse mortgages are specifically aimed at older people in need of cash whose money is tied up in a high-priced property and who require access to more of their home equity than what government-insured reverse mortgages permit.
The basic function of the jumbo and traditional reverse mortgage is similar: They offer older homeowners the possibility of receiving their home’s current value minus any liens, as a lump sum, series of monthly payments, or line of credit in the form of a loan that doesn’t have to be paid back until a maturation event — which essentially means for as long as they live in the home and keep up with the bills.
Beyond their basic structure, there are differences. Traditional HECMs are backed by the US Department of Housing and Urban Development (HUD) and, subsequently, subject to stricter rules, including a tighter limit on how much can be borrowed— $ 970,800 in 2022. Jumbo reverse mortgages, on the other hand, are backed by the companies that develop them and are given much freer rein to operate as they see fit.
Jumbo reverse mortgage eligibility requirements
Because they are not backed by the federal government, each jumbo reverse mortgage lender has more freedom to decide who qualifies for one of these loans. Eligibility requirements vary, although common conditions include the borrower owning over 50% of home equity, living in the home as a primary residence, and being at least 55 years old.
How much can you borrow?
The amount you can borrow generally depends on the appraised value of your home, the amount of equity you own in the property, and your age. The maximum sum available is $ 4 million. However, to qualify for a loan of that size, the applicant must, at the very minimum, have at least that amount of their own capital tied up in their home.
Think carefully before signing up for one of these loans. There may be alternative, more cost-effective ways to secure the money you may desperately need.
When is the jumbo reverse mortgage repayable?
As with traditional reverse mortgages, these loans become repayable not on a fixed date but when a specific maturity event occurs.
Generally, the recipient of a reverse mortgage is not required to return the amount borrowed plus interest for as long as they live in the home. Maturity events typically kick in on the following occasions:
- The borrower passes away.
- The property is sold.
- The title of the home is transferred to someone else.
- The borrower does not live in the home for at least 12 consecutive months.
- The home is no longer the borrower’s principal residence, meaning it’s not where they live for the majority of the year.
- The borrower fails to keep up with property taxes and homeowners insurance payments.
- The property is falling apart and the borrower is not getting it repaired.
Jumbo reverse mortgages are not as common as regular reverse mortgages and disappeared for a while after the housing bubble burst and property prices crashed in 2008.
Pros and Cons of a Jumbo Reverse Mortgage
This type of reverse mortgage caters to a fairly niche crowd: older people who own a high-priced home yet are short on cash and have no cheaper alternative means to secure it.
For individuals who fit this profile, a jumbo reverse mortgage can offer a pretty big payout. The most obvious drawback is that this market can be a bit wild west and potentially rip off those who do not do their homework before choosing a lender. A lack of government intervention means it’s imperative to consider each proposal carefully and thoroughly consider all the fine print. If you do not, your heirs could be left with very little to inherit.
- You can borrow more money—With a jumbo reverse mortgage, it is possible to borrow up to $ 4 million in a lump sum or as a line of credit, which is more than four times the 2022 maximum for a HECM loan.
- Mortgage insurance is not required—The government demands that all HECM borrowers have mortgage insurance, which can be quite expensive, as there is a risk that loans may not be repaid in full. Jumbo reverse mortgages come with no such requirement.
- It’s accessible at a younger age—To qualify for a HECM, the applicant must be at least 62. With a jumbo reverse mortgage, it is possible to tap into your home equity at 60 or even 55, depending on the lender.
- More homes qualify—Your condo does not have to be approved by the Federal Housing Administration (FHA) to qualify for a jumbo reverse mortgage loan.
- Higher borrowing costs—Interest rates on jumbo reverse mortgages tend to be higher than on HECMs and traditional home loans, partly because larger amounts are being borrowed over potentially longer timeframes and the lender is on the hook should property prices plummet.
- Fewer protections—The absence of government backing means the companies offering jumbo reverse mortgages have more freedom when setting rules. Some lenders will offer assurances similar to a HECM, including younger spouse protection and the non-recourse feature that ensures borrowers do not owe more than the value of their home when the loan is due to be repaid. They are not bound by FHA rules, though, so be sure to check each lender’s terms before signing up.
- Prone to scams—Less regulation also means jumbo reverse mortgages are often targeted by scam artists. Be skeptical of any pitches you get and if you think you’ve been scammed, contact the Consumer Financial Protection Bureau (CFPB) as soon as possible.
- Less flexible line of credit—Jumbo reverse mortgage lenders tend to offer less flexible payment options. Generally, you must take all of the money within a certain number of years and, unlike with a HECM, cannot opt to receive a monthly income for life, which can come in handy as a supplement to a pension.
Don’t underestimate the jumbo reverse mortgage’s borrowing costs. Interest charges compound and can eat into a lot of homeowner equity over time.
What Is the Largest Reverse Mortgage Available?
That depends. The maximum you can borrow on a reverse mortgage with government backing is $ 970,800 in 2022. However, if you qualify for a private or proprietary reverse mortgage loan, you could get up to $ 4 million.
Who Owns the Home With a Reverse Mortgage?
When you take out this kind of loan, the title of your property remains with you. That will remain the case at least until the loan is repayable, at which point the house may need to be sold to pay off the balance due.
Is Money From a Reverse Mortgage Taxable?
These payments are not taxable as they are considered loan proceeds rather than income.
How Do I Calculate My Home Equity?
Home equity is your ownership stake in your property. To calculate your home equity, subtract your mortgage balance (and any other liens) from the property’s current market value.