Loan Limits and Jumbo Reverse Mortgages
The maximum loan amount on a traditional HECM Reverse Mortgage used to be as low as $200,000. In 2009, Congress passed legislation that increased Reverse Mortgage loan limits to $625,500. This loan limit increase on the HECM Reverse Mortgage (Home Equity Conversion Mortgage – HECM) has decreased the need for Jumbo Reverse Mortgage loans – since Jumbo Reverse Mortgages were originally only offered on high value homes.
For homeowners of high value homes – usually homes valued at $600,000 or more – a Jumbo Reverse Mortgage usually offered significantly higher amounts of money to the homeowner. The HECM product could not offer higher loan amounts because they were legislated with loan limits – they could not lend more than pre-specified amounts. In fact, the HECM product was originally designed specifically for low and medium value properties.
Other options for high value homeowners seeking access to their home equity include: Home Equity Conversion, Downsizing and Home Equity Loans.
What Is a Jumbo Reverse Mortgage or Proprietary Reverse Mortgage?
Jumbo Reverse Mortgages – also known as Proprietary Reverse Mortgages – are Reverse Mortgages that are structured and backed by private companies. (The HECM programs, by contrast, are structured and insured by the federal government.)
How Does a Jumbo Reverse Mortgage Differ From Other Reverse Mortgages?
A Jumbo Reverse Mortgage is a Reverse Mortgage product designed for high value homes – typically homes valued above the $625,000 level although the specifics of the loan will depend on the borrower’s age and location.
So, the main difference is simply that it is possible to get more money out of a high value home with a Jumbo Reverse Mortgage than from other Reverse Mortgage products.
Who Offers a Jumbo Reverse Mortgage? What are the Different Kinds of Jumbo Reverse Mortgages?
Jumbo Reverse Mortgages are Reverse Mortgage loans structured by private firms. Like the HECM programs, they are heavily regulated, but they are proprietary products offered directly by private institutions.
More proprietary reverse mortgage programs may be reintroduced as the housing and credit markets stabilize to meet the evolving needs of senior homeowners.
What Are the Downsides of a Jumbo Loan or a HECM Reverse Mortgage With a High Loan Amount?
The obvious downside is the same as the upside… with a Jumbo Loan – or a HECM Reverse Mortgage with a high loan amount – you are simply borrowing more money. And, if you take out that money in cash then you will be paying more interest.
However, many high value homeowners choose to take their loans as a line of credit where you only pay interest on the sum you actually use. And, as with all Reverse Mortgages, you don’t have interest payments during the term of the loan nor should you owe more than the value of the home at the time the loan is ended. And, so long as you reside in the home, you will always retain ownership.
Further good news is the fact that the HECM typically has charged a lower interest rate than the Jumbo Reverse Mortgage products.
Are There Limits on How to Spend a Jumbo Reverse Mortgage? Are There Limits on How to Spend HECM Reverse Mortgage Loan Amounts on High Value Homes?
There are absolutely no limits on how you can spend your Jumbo Reverse Mortgage. Nor are there any with a HECM. However, you must pay off any liens against your home, including any balance on your mortgage – which is true of the Jumbo products as well.
Retirees have used Reverse Mortgages to fund:
- Living Expenses
- Long Term Care
- Medical Procedures
- Additional insurance
- Vacation Homes
- Anything and Everything
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