In the simplest terms, a jumbo reverse mortgage is a loan initiated by a lender that makes it possible for owners of high value homes to tap into larger portions of their home equity than they wouldn’t be able to with a standard reverse mortgage. However, there are some important distinctions to draw about jumbo reverse mortgages, and a few interesting economic factors that influence their prevalence that are worth discussing.
How Are They Different From Regular Reverse Mortgages?
In order to understand what a Jumbo Reverse Mortgage is, you have to first understand a bit about the structure of a traditional reverse mortgage. As we’ve covered before, a standard reverse mortgage is a loan that uses your home as collateral and doesn’t require a monthly payment. The interest that you accrue on a monthly basis with a reverse mortgage is deferred and will be repaid when you sell the home, no longer occupy it as your primary residence, or pass away.
The most common reverse mortgage in the United States is the Home Equity Conversion Mortgage (HECM). The U.S. Department of Housing and Urban Development (HUD) created this mortgage and is responsible for its regulation. It is not a government loan. A private bank issues the loan and then the Federal Housing Administration (FHA) insures it.
A jumbo reverse mortgage, or proprietary reverse mortgage as they are often referred to, is different in several key ways:
- A jumbo reverse mortgage is built for homes of a higher value. These loans are designed mainly for homes valued above $625,000
- With a jumbo reverse mortgage you are taking more out of your equity, and thus, usually paying a higher interest rate.
- Unlike HECMs, jumbo reverse mortgages are not insured by the Federal government.
- Being privately insured, jumbo reverse mortgages aren’t subject to all the same regulations as HECMs. However, most companies do their best to provide the same consumer protections that are found in an average HECM program as a matter of safe practice.
Where Did The Jumbo Reverse Mortgage Go?
If you’ve been tracking reverse mortgages for the past several years, you’ve probably been wondering where the jumbos went? It appears that their already small demand took a sharp drop in recent years. A significant blow was dealt to the jumbo reverse mortgage market back in 2009 when Congress approved legislation that boosted HECM limits from $200,000 all the way up to $625,500. HECMs were originally designed with houses of lower and medium value in mind, but with this change they began to be more useful to a larger base and as a result; they started edging out jumbos.
The legislation wasn’t the only force working against jumbos. The global economic downturn served to further strangle both the viability and availability of jumbo reverse mortgages. During uncertain economic times, jumbo reverse mortgages may be considered too risky for lenders to originate because of sinking home values. The reason for this is that a home, which is the loan’s collateral, loses value, the lender must absorb more risk and may be unwilling to offer the product because of that.
Despite the sudden disappearance of the jumbo reverse mortgage, there is no guarantee that it has gone the way of the dodo yet. If housing prices continue to rise, as they have been doing of late, lending intuitions may experience some relief in their credit crunch. If credit markets stabilize, that could diminish some of the risk inherent in this type of product. A demographic shift may also drive some interest toward this particular mortgage model. Not only is our population aging, but many seniors are living longer. If demand sees an uptick, supply will endeavor to follow. There are some indications that this is already happening.
Are Reverse Mortgages Right For You?
Whether or not jumbo reverse mortgages or even HECMs for that matter, make fiscal sense for you is a question that only some thorough consideration and ethical advising can answer. The world of reverse mortgages is tangled, complicated, and often stirred up by policy change. If you’re on the march to do your due diligence, take a look at our guide on what to avoid. If you’ve looked around and still aren’t satisfied, Premier Reverse Mortgage’s specialists are always standing by to give you some custom and comprehensive consultation.