What’s the Difference? Which is Best for You?
If you have recently retired and are interested in using the equity found in your own home in order to help make life easier in your golden years, you might be researching reverse mortgages. While many people take part in the advantages provided by reverse mortgages in order to fund their retirements, if you your home’s worth is higher than average – in the $1 million+ range – then a traditional reverse mortgage may not give you the most bang for your buck. This is where a jumbo reverse mortgages come in.
In 2019, traditional reverse mortgages were limited to $726,525.00, up from the previous limit of $679,650.00; clearly, if you own a high-worth property, you wouldn’t get the most value for your home if you went this route. Jumbo reverse mortgages are essentially similar to traditional reverse mortgages, but with some distinct differences as well. However, there is a smaller pool of lenders that offer jumbo reverse mortgages following the mid-2000’s housing crash; if you are interested in a jumbo reverse mortgage, contact a Certified Reverse Mortgage Professional in your area for assistance.
But first of all, what is a reverse mortgage? Simply put, it’s a loan available to seniors age 62 or older that converts a portion of the equity you’ve built up in your home into cash that you don’t have to pay back until the property is sold or the current occupants pass away. That cash can be used to pay bills or debts, take vacations, or anything else that you deem necessary.
Please note that even though a reverse mortgage does not have monthly payments associated with it, home owners are still responsible for property taxes, insurance and home maintenance costs. In addition, reverse mortgages have interest and fees, meaning the amount you owe will go up as time goes by.
However, traditional reverse mortgages have one major issue- they’re only effective if the value of your home doesn’t exceed a certain level, that being the $726,525.00 as of 2019. If you home is worth more than that amount, you will not be able to access all of the equity that you’ve built up in your home with a FHA guaranteed reverse mortgage. The recourse in this situation is to attempt a jumbo reverse mortgage; because these loans are not FHA guaranteed they have more leeway in terms of size and limits, and as a result they allow a homeowner to access up to a whopping $6 million worth of home equity, depending of course on the age and condition of your home, in addition to how much you may still currently owe on it.
But typically the only FHA rule that jumbo reverse mortgage lenders avoid are in regards to loan size; otherwise, they tend to follow most FHA guidelines in regards to borrower protections, which can be quite significant and stringent. For example, jumbo reverse mortgages are “non-recourse” loans, meaning that if the balance of your loan is over the value of your home, you are not obligated to pay the difference; the lender does. In addition, co-borrowers or non-borrowing spouses can stay in the home as long as they like, provided they keep up with taxes, insurance or maintenance costs.
But there are some important differences between traditional reverse mortgages and jumbo reverse mortgages as well – with the former, you don’t receive the entirety of the loan right away; instead, they are disbursed to you as a line of credit or monthly payment. But with a jumbo reverse mortgage, you get your funds right away, in their entirety. In addition, interest rates on Jumbo reverse mortgages tend to be significantly higher than the rates offered via FHA guaranteed reverse mortgages.
Also, while jumbo reverse mortgage lenders tend to offer similar levels of protections as traditional reverse mortgages, they are not FHA guaranteed. As a result, borrowers should never assume their level of protection when utilizing a jumbo reverse mortgage; instead they should be very thorough and inquire about any and all protections that a lender offers before signing on the dotted line.
At the moment jumbo reverse mortgages are fixed rate loans. Other aspects pertaining to traditional reverse mortgages also apply, such as interest and fees raising the amount owed over time and the responsibility of the homeowner to pay taxes, insurance and maintenance; inability to do so could force the homeowner out of their home.
Reverse mortgages have been helping retirees utilize the equity that they have built up in their homes over their years of ownership; they eliminate monthly mortgage payments and give them money in-hand to pay bills and build their nest egg. If you have recently retired and your home is valued over $1 million, you may want to look into the potential benefits that a jumbo reverse mortgage could offer you.