Jumbo reverse mortgages, sometimes referred to as proprietary reverse mortgages, are designed to help owners of higher-value homes convert a portion of their home’s equity into funds needed for retirement. A jumbo reverse mortgage may be a better solution for a borrower if their home value is appraised above the traditional Home Equity Conversion Mortgage (HECM) limit of $726,625.
How is a jumbo reverse mortgage different?
- Higher Loan Limits: Traditional HECMs limit borrowers to a maximum
claim amount of $726,625 whereas a jumbo reverse mortgage allows borrowers to
access up to $4,000,000 (depending on the lender).
- Rates: Similar to forward mortgages, interest rates tend to be higher
for jumbo products than the traditional loan.
- Immediate Access to Funds:
HECMs limit the amount of proceeds available
to the borrower in the 1st year.
This is referred to as the Initial Disbursement Limit, which is
calculated as 60% of the principal limit, or mandatory obligations plus an
additional 10% of the principal limit.1 Jumbo reverse mortgages allow
borrowers to receive the full amount of proceeds upfront, immediately after the
loan closes.
- Mortgage Insurance Premium (MIP): HECMs are insured by the Federal Housing Administration (FHA), which requires the borrower to pay upfront and ongoing MIPs. Since jumbo reverse mortgages are not FHA-insured, this fee is not required.
Let’s look at a scenario from a lender:
Dan (age 72) and Lucy (age 65) are a married couple in California.
They have a $200,000 mortgage, which they are paying off monthly, on top of their normal living expenses. They would like to remodel their kitchen and start planning for retirement.
They decide to contact a reverse mortgage loan advisor to discuss their current needs and future goals.
An appraiser determines that their home’s value is $850,000.
Below is an illustration of the available proceeds Dan and Lucy would receive with the traditional reverse mortgage (HECM Fixed (4.56%)) versus a Jumbo (Fixed (6.50%)):
| HECM 4.56 Fixed* | Jumbo 6.50 Fixed** | |
|---|---|---|
| Principal Limit | $ 333,475 | $ 365,500 |
| Cash Available At Closing | $ 33,348 | $ 162,797 |
With the jumbo reverse mortgage, this same borrower would be able to access over $120K more than the traditional HECM.
If you are interested in learning more about a jumbo reverse mortgage option, call (800) 976-6211 to speak with a licensed reverse mortgage specialist.
1https://www.hud.gov/sites/documents/14-21ML.PDF
* This example is based on a 65-year-old borrower with a property in California and a fixed-rate HECM loan (interest rate of 4.56%). It’s using an appraised value of $850,000, a loan origination fee of $6,000, a mortgage insurance premium of $14,530.50, and other settlement costs of $2,703, with the total closing costs of $23,233.50. The available proceeds presented is the maximum available cash during the 1st year ($33,347.50), which is calculated using the initial disbursement limit ($256,581.00) minus mandatory obligations ($200,000+$23,233.50= $223,233.50). Interest rates may vary and the stated rate may change or not be available at the time of loan commitment.