Best Jumbo Reverse Mortgages

Jumbo reverse mortgages have the same function as traditional reverse mortgages, or home equity conversion mortgages (HECMs), as they allow homeowners to stop paying their existing home loan and withdraw a portion of their equity in the form of cash.

However, this cash is only disbursed as a lump sum, so customers can’t choose to receive the loan as a line of credit or as fixed payments.

Who Are They For?

Jumbo reverse mortgages, often called proprietary reverse mortgages, differ from a regular reverse mortgage in that they are for loan amounts that exceed the conforming limits set by the Federal Housing Finance Agency, and therefore cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

Put simply, if your home is worth more than $679,650, you can't get a traditional government-insured reverse mortgage and you must opt for a Jumbo loan. 

Jumbo reverse mortgages are designed for luxury properties and homes in highly competitive local markets.

They are not insured by the FHA but rather originated and backed by private institutions.

However, borrowers are subject to the same obligations as they are under traditional reverse mortgages. 

Homeowners must be over 62 years old, continue to live in the home, own their home outright or have a low mortgage balance that can be paid off with the proceeds, and have the financial resources to continue to maintain the property and pay all associated fees.

Jumbo reverse mortgages also generally do not require monthly mortgage insurance premiums. 

Who Should You Tell?

No matter if it’s regular or jumbo, if you are deciding on a reverse mortgage loan, it’s important for you to contact your relatives about your decision.

Reverse mortgage loans are designed to help consumers 62 years or older with their retirement expenses by providing an additional influx of cash.

The loan works as an alternative to downsizing, selling a borrower’s home or obtaining a home equity loan, since it provides a reliable source of income while still letting borrowers own and live in their home.

Reverse mortgages differ from other conventional loans in that it’s the bank that pays the borrower, either monthly, as a line of credit, or in a large lump sum.

The payment is based on the home’s equity, and since it’s the bank that pays the borrower, there are no monthly mortgage payments to worry about.

However, this doesn’t mean a reverse mortgage is free, as the loan accumulates monthly interests that are paid at the end of its lifespan.

The loan is due only when 1 of the following four conditions are met: when the last borrower dies, if the house stops being his or her primary residence (the house is sold or the borrower moves out), if a borrower is absent for more than 12 consecutive months, or if a borrower is unable to pay for home repairs, insurance, or taxes.

Even if a borrower leaves their home due to extended hospitalization or to live in a nursing home or a similar facility, if the length exceeds twelve months, the reverse mortgage loan would become due.

This means that reverse mortgages are not for everyone, mostly benefitting borrowers with no plans of moving, who can afford the daily maintenance costs of their home, and who don’t mind losing the rights to their home.

Advantages and Disadvantages 

Seniors who want their family to inherit their house won’t benefit from any type of reverse mortgage, since the loan gives lenders the right to take control of their home unless the total sum of the loan is paid.

Reverse mortgage loans accrue interests, which usually amount to more than the total equity of the home, making it difficult for family members to pay off.

Lenders give heirs 6 months to pay the loan, although the amount of time can be increased at the lender’s discretion.

In the case that the loan can’t be paid in full, or 95% of the home’s appraised value, whichever is less, the home is sold and all funds go to the lenders.

However, if the loan amount is less than the total equity of the house, lenders only get to keep the amount owed and heirs receive the difference.

In both cases, inheritors are protected if the loan amount owed is more than the equity of the home, since all FHA-insured reverse mortgages are nonrecourse.

This means that lenders can’t ask to liquidate any other asset from a borrower’s family, since they can’t owe more than the total value of the home. 

There are several advantages and disadvantages that come from a jumbo reverse mortgage loan, so it’s important for customers to check all financial options available to them before committing to this type of loan.

On the plus side, jumbo reverse loans let borrowers receive a larger loan amount, exceeding the $679,650 limit of regular reverse mortgages and capping at $6,000,000.

This amount is still subject to all the regulating factors for reverse mortgages, including a borrower’s age, total home value, and total mortgage balances owed, if any.

Jumbo reverse loans also benefit from no upfront or recurrent mortgage premiums, although this does not make them any cheaper than regular reverse mortgage loans.

As standard, reverse mortgage lenders charge borrowers a mortgage insurance premium (MIP) of 2% of the total house value, and they also charge 0.5% of the loan balance annually.

Jumbo reverse mortgage loans are not subjected to these charges, but most lenders charge up to 2% of the home’s appraised value through underwriting services, making the loan a higher-priced venture.

Another benefit is that a jumbo reverse loan’s interest rates are always fixed, meaning that customers won’t have unexpected increases during the loan’s term.

Final Notes 

On the downside, Jumbo reverse mortgage loans don’t have line of credit or monthly income disbursement options, so customers need to take the entire loan upfront and manage these funds efficiently throughout the loan’s lifespan.

Also, jumbo reverse loans come with higher interest rates than their FHA-approved counterparts, typically from 1 to 2 percent higher, so expect to pay way more than a typical reverse mortgage once the loan closes.

Another disadvantage is that, since jumbo reverse mortgages are expensive, lenders need to make sure that you have enough income to pay for the loan.

This makes jumbo loans more difficult to approve, since customers have to demonstrate that they can pay for the loan and still have enough money for property taxes, maintenance, and all of their other daily expenses.

Most lenders check for FICO scores, so customers with less than average credit scores will have a harder time approving for this type of loan.

Another downside is that, since jumbo reverse mortgages are not FHA secured, there is a higher chance of not being protected if the total loan balance is greater than the value of the property.

To appease the mind of customers, most jumbo reverse mortgage lenders offer borrower protections similar to those of the Federal Housing Administration, including nonrecourse benefits.

However, these benefits are optional for jumbo reverse mortgage lenders, so it’s imperative that borrowers ask what specific protections a lender offers, if any.