How Jumbo Reverse Mortgages Work
While most reverse mortgages are insured by the Federal Housing Administration (FHA) through its Home Equity Conversion Mortgage (HECM) program, there are also a rising number of non-FHA reverse mortgages known as proprietary products or private products.
Among those non-FHA reverse mortgages, the programs offering loan amounts higher than the FHA’s lending limit typically are referred to as “jumbos.” Like jumbo programs in the forward mortgage market, reverse mortgage jumbos typically extend more borrowing potential to homeowners in that their lending limits exceed the current $970,800 lending limit set by FHA.
Jumbo reverse mortgages are available to qualifying homeowners who have home values generally higher than the average HECM loan amount. Many jumbo reverse mortgages are held by homeowners in California and other areas where home values tend to trend higher than the national average.
In this article you will learn:
- Differences between jumbo and FHA-insured reverse mortgages
- Key benefits of a jumbo reverse mortgage
- Risks and rewards of a jumbo reverse mortgage
- History and current market outlook for jumbo reverse mortgages
Differences between jumbo and FHA-insured reverse mortgages
Jumbo reverse mortgages are proprietary loans, meaning they do not need to adhere to Department of Housing and Urban Development program rules. There are several lenders offering jumbo reverse mortgages, and their specific elements vary. Some private reverse mortgage programs offer features that the FHA-insured Home Equity Conversion Mortgage (HECM) product does not. These might include:
- A minimum borrower age that is below the HECM minimum age of 62
- The ability to borrow on a non-FHA-approved condo unit
- The ability to take out the full amount of a lump sum payment upfront with fewer restrictions than under the HECM program
Another major difference is the jumbo’s lack of a mortgage insurance premium, a cost that applies to all HECM loans.
In most respects, however, jumbo reverse mortgages are very similar to HECMs. Jumbo programs typically require reverse mortgage counseling, they may offer different disbursement options such as lump sum and a jumbo line of credit option, and they allow borrowers to tap into their home equity while they live in the home.
Jumbo VS HECM Product Comparison
|Compare Features||Jumbo Reverse Mortgage||HECM Reverse Mortgage|
|Borrower Minimum Age||55||62|
|Maximum Lending Limit||$4,000,000||$970,800|
|Eligible Properties||Single Family (SRF), FNMA warrantable Condo, Townhome, 1-4 Units.||Single Family (SRF), HUD Approved Condo, Townhome, 1-4 Units.|
|Line of Credit||10 Year Draw Period||Lifetime|
|Line of Credit Growth Rate||Limited to 7 Years||Lifetime|
|Tenure Payment Plan||No||Yes|
|Low/No Closing Costs||Yes||No|
|Younger Spouse Protection||No||Yes|
|Use for Home Purchase||Yes||Yes|
Key benefits of a jumbo reverse mortgage
The key benefit of a jumbo reverse mortgage is the ability to maximize loan proceeds for home values at higher levels. The exact percentages and figures will vary depending on several factors including the interest rates, borrowers’ ages, and the home value.
However, many jumbos are available with a lending limit of $4 million or more — a significant increase over the HECM lending limit of $970,800
Jumbo Reverse Mortgage Loan-to-values (LTV)
Available Payout: Lump Sum
*To calculate your loan amount divide your home value into the LTV percentage.
E.g., $2,000,000 value, age 70 = 54.6% LTV or $1,128,000 loan amount.
Jumbo Reverse Mortgage Rates
|Fixed Rate||Adjustable Rate||Lending Limit|
|5.49% (5.625% APR)||6.645% (4.875 Margin)||$4,000,000|
|5.75% (5.875% APR)||6.76% (4.99 Margin)||$4,000,000|
|5.99% (6.00% APR)||6.89% (5.124 Margin)||$4,000,000|
|6.50% (6.625% APR)||6.89% (5.250 Margin)||$4,000,000|
Jumbo APR Illustration: Assumes $1,000,000 loan amount, includes standard 3rd party closing costs.
Adjustable-Rate Payment Options: Lump Sum or Line of Credit
Index: 12-Mo. CMT
Lifetime Cap: 5% Over Start Rate
Risks and rewards of a jumbo reverse mortgage
For those considering a jumbo reverse mortgage, there are some pros and cons to consider – most of which apply to all reverse mortgages.
History and current market outlook for jumbo reverse mortgages
Like all mortgage products, the jumbo lending environment changes based on many factors. Historically, there were many non-FHA reverse mortgages with different rates and terms.
After the housing crash in 2008, most jumbos disappeared from the market. Based on low interest rates and changes to the FHA lending limit in recent years several jumbo products launched, offering a variety of rates, terms, and features.
If you are interested in a jumbo reverse mortgage, it’s important to ask about the specific terms offered by your lender, such as the amount that can be borrowed, the ways in which proceeds can be obtained, and the types of protections in place regarding non-borrowing spouses.
What is a jumbo reverse mortgage?
The jumbo reverse mortgage is a special type of loan that offers larger loan amounts than the federally insured HECM. Where federally insured HECM loans stop considering home values over the HUD lending limit of $970,800, a jumbo reverse mortgage will consider home values up to $10 million.
What lenders offer jumbo reverse mortgages?
Many lenders and brokers throughout the US offer jumbo loan options. At All Reverse Mortgage Inc, we offer a multitude of HECM, Jumbo & proprietary options to suit your individual needs.
What are the interest rates on Jumbo Reverse mortgages?
Current fixed interest rates are as low as 5.875% (6.0% APR), and adjustable rate programs are presently at 5.89% (4.875 Margin) with a lifetime cap of 10.89%. DISCLAIMER: Interest rates are subject to change without notice.
How much can you get from a jumbo reverse mortgage?
The percentage of your home’s value is available based on the youngest borrowers age and current interest rate environment. Generally, the older you are the more you will receive, as these loans are based on actuarial tables.
Can you get a jumbo reverse mortgage line of credit?
Yes. There are two exciting expansions on jumbo products in 2021 which include larger loan limits and the ability to utilize available proceeds as an open line of credit option. (Previously only a single lump sum disbursement was permitted on jumbo loans).
What is the difference between jumbo and proprietary loans?
Where jumbo reverse mortgages are proprietary by nature, proprietary reverse mortgages are not necessarily jumbo. “Jumbo” is a reference to a “large loan amount”. Some proprietary reverse mortgages are offered to home values as low as $400,000 where Jumbo programs usually benefit those high valued homes that are in excess of the HUD lending limit $970,800.
Read my article published at Forbes.com “The Evolution Of Jumbo Reverse Mortgages”.