Jumbo Reverse Mortgage Benefits

A)  More money

B)  Lower closing costs (no mortgage insurance)

C)  Allowed to pay off debts to qualify

D)  Loan amounts to $4 million

E)  Can get all proceeds at closing – don’t have to wait one year

F)  House value not capped at FHA's national lending limit

G)  One appraisal on values up to $2 million

H)  Can have 4 financed properties plus primary residence

I)  Non-FHA approved condos

2018 Jumbo Reverse Mortgage Upgrades

1)  Higher loan amounts

2)  Deferred disbursement option on a fixed-rate loan

3)  Age requirement dropped to 60

4)  Reverse second mortgage

5)  Jumbo reverse with a line of credit

Jumbo Fixed Rate Options

The benefit of a jumbo fixed-rate reverse mortgage is the safety and security of knowing what the interest rate will be. If you’re of the opinion that rates are going to increase and that our collective deficit spending could mean rates rise considerably, a fixed rate provides peace of mind.

One of the biggest differences between the FHA and jumbo version is that with FHA, there are limits around how much can be accessed at closing (60%). Not only are FHA borrowers dealing with lower loan amounts, but having to wait a year to get up to 40% of what they’re eligible for is sometimes a big issue.

The jumbo reverse doesn’t have that constraint. The borrower can have the full loan amount at closing.

However, before the recent innovations, a homeowner had to take the full amount.

What if they don't want all the money on day one?

What if they don’t want to pay interest on money they don’t need?

Introducing the deferred disbursement option, which allows a jumbo reverse borrower to spread out up to 40% of their proceeds over the first five years.

Jumbo Second Mortgage

The jumbo reverse mortgage in second lien position is just what it sounds like: a second mortgage where the homeowner doesn’t have to make a monthly mortgage payment.

This is ideal for someone who has a low-interest rate on their existing first mortgage, they can comfortably make the current payment, but they either (a) can’t qualify for a second mortgage, or (b) don’t want to make an additional mortgage payment on a HELOC (home equity line of credit).

People in this group have the luxury of being concerned with legacy, preserving estate value, but still need to access some of the wealth trapped in their home to do what they want.

Second mortgage examples that come to mind include:

Gifts, like helping children with a down payment on a home

Early inheritance strategies

Home improvements

Medical or insurance expenses

Bridge financing for construction or business

Settling taxes or judgments

Buying a second home or timeshare

Helping with children’s or grandchildren’s college expenses

Travel, lifestyle, etc.

Jumbo Reverse Mortgage Line of Credit

Now, homeowners can get a jumbo reverse mortgage, with a line of credit feature – similar to the FHA reverse mortgage – but with no mortgage insurance. This is a big deal. The jumbo reverse line of credit matches the initial draw with a 10-yr line of credit. At the end of ten years, the loan does not become due nor do amortizing payments have to be made.

Jumbo Benefit – No Mortgage Insurance

Closing costs on jumbo reverse mortgages are much less than FHA reverses, largely because there’s no upfront or annual mortgage insurance.  

If someone takes out a small-draw FHA reverse mortgage loan (with a substantially unused line of credit), they still pay 2% upfront mortgage insurance on the value of the house. That equates to: 2% of $726,525 = $14,530

Not having to pay for mortgage insurance is why closing costs are much less with a jumbo reverse mortgage; i.e., $14,530 less.

And not having to pay annual mortgage insurance further lowers long-term costs. For example, the 10-year cost of annual mortgage insurance on a $340,000 FHA reverse would total $23,754. With a jumbo reverse, the annual mortgage insurance cost is zero... because there is no insurance.

Top 5 Uses of Jumbo Reverse Mortgages

As you might imagine, jumbo reverse mortgages are more about lifestyle than need. We often talk to clients who have a half-million or more in retirement accounts but they prefer to protect that liquidity. They know that their house will appreciate at the same rate whether it has a mortgage on it or not.

Data on recent jumbo reverse mortgage loans revealed borrowers are older and have larger loan amounts than expected. The average borrower age was 77 with a home worth $1.7 million.

The top five reasons for getting a reverse mortgage, in order, are as follows:

Home renovation, remodel, or repairs

Purchase vacation home or rental property

Help children buy a home

Gifting to heirs - early inheritance

Help adult children's kids (grandkids) with college