If you need some additional income during your retirement, you may want to turn to a reverse mortgage. A jumbo reverse mortgage is specifically available for owners of high-value homes who want to pay off their initial mortgage or improve their cash flow during retirement. However, you need to do your research to find the best financial solution for your personal situation. Find out how a jumbo reverse mortgage works to determine if it’s the right financing option for you.
What Is a Jumbo Reverse Mortgage?
A jumbo reverse mortgage is a loan that enables owners of high-value homes to access a larger portion of their equity than they can with a HECM or regular home equity loan. Since it isn’t federally insured, this type of financing doesn’t need to comply with the Federal Housing Authority (FHA) mortgage limit, which is $765,600 in 2020. In some cases, a jumbo reverse mortgage may have a loan limit of up to millions of dollars.
Jumbo reverse mortgages were first introduced in the mid-2000s, but they disappeared after the housing market crashed in 2008. Then, they made a comeback in 2014 after home prices rebounded. Today, these mortgages still account for only a small portion of the reverse mortgage market because they’re only meant for people who own homes valued above the FHA limit.
How Jumbo Reverse Mortgage Works
A jumbo reverse mortgage works in the same way as a traditional reverse mortgage. You aren’t required to make monthly payments, but instead, your mortgage balance will grow over time. The loan balance is due when you move out of your property, either by selling it, relocating to an assisted-care facility, or passing away. However, you can also choose to pay off your loan balance at any time before the end of your mortgage term.
Pros and Cons of a Jumbo Reverse Mortgage
A jumbo reverse mortgage offers many benefits over a HECM or home equity loan, but it also has a number of drawbacks you should be aware of. The following are the pros and cons of getting a jumbo reverse mortgage:
- High loan limit: If you decide to take out a jumbo reverse mortgage, you can potentially borrow hundreds of thousands of dollars more than the loan limit of a HECM. With a larger amount of money at your disposal, you’ll have more control over your cash flow, assets, and investments.
- No restrictions on the use of proceeds: You have the freedom to use the proceeds from a jumbo reverse mortgage any way you want. You can use the funds to pay for home improvements, buy a vacation home, cover medical expenses, finance your child’s college education, consolidate your debts, or reduce the need to take distributions from your investment portfolio.
- No insurance premiums: Since a jumbo reverse mortgage isn’t an FHA-guaranteed product, you don’t have to pay upfront or monthly mortgage insurance premiums.
- Non-recourse loan: In most (but not all) cases, a jumbo reverse mortgage is a non-recourse loan. This means you aren’t required to pay the difference if your loan balance is higher than the value of your home. Your lender has to absorb the loss on their own.
- Fixed interest rate: Another appealing aspect of a jumbo reverse mortgage is its fixed interest rate. You can choose from a variety of interest rates to suit your goals, but the size of your loan will increase in a predictable manner. This makes it easier for you to plan your finances.
- High interest rate: A jumbo reverse loan has a significantly higher interest rate than a traditional reverse mortgage. The higher rate will cause your home equity to disappear faster.
- No other payment options: When it comes to the payment of proceeds, a jumbo reverse mortgage isn’t as flexible as an FHA-guaranteed reverse mortgage. You have to take all the loan proceeds at once and use those funds carefully throughout your retirement. If you don’t have good money management skills, it can be risky to get this type of loan. A regular reverse mortgage, on the other hand, allows you to choose a line of credit or receive monthly payments.
- Maintenance, tax, and insurance costs: Although a jumbo reverse mortgage doesn’t require you to make monthly mortgage payments, you must continuously pay maintenance, tax, and insurance costs for your home. Failure to make these payments promptly can cause you to lose your home.
What Are the Eligibility Requirements for a Jumbo Reverse Mortgage?
Before you apply for a jumbo reverse mortgage, you have to meet certain eligibility requirements, which may vary from one lender to another. To qualify, you generally have to be at least 62 years old and own a high-value home. Also, the home you’re borrowing against must be your primary residence and one of the eligible types of property, such as a single-family home or condominium unit. Some lenders may require you to meet financial assessment requirements to show that you have enough funds to keep your home in good condition and pay your property taxes and homeowners insurance premiums.
How To Apply for a Jumbo Reverse Mortgage
While they aren’t as common as regular reverse mortgages, jumbo reverse mortgages are now available with many lenders. After selecting the right lender, you can proceed to fill out their application form and send them the required documents, including your sources of income, number of homes you own, and credit history. You’ll also need to have an appraiser visit your home to assess any repair needs or features that could impact its value. The lender may require you to undergo counseling to gain a better understanding of jumbo reverse mortgages.
If you’re concerned about the high interest rate and high risk of a jumbo reverse mortgage, you may want to consider contacting Point. Point’s tested-and-proven home equity investment (HEI) program offers an alternative way for you to tap into your home equity with minimal risk and maximum flexibility. An HEI gives you access to $35,000 all the way up to $350,000 while you retain full legal ownership of your property. On average, homeowners who use this program to reduce their debts see an increase of $1,413 in their monthly cash flow. Contact us today to find out more about how Point works.Tags: Reverse Mortgage