As home values continue to rise, many homeowners seek financial solutions that align with their property’s new, increased values. Reverse mortgages offer a compelling option for seniors looking to tap into their home equity. However, the Federal Housing Administration (FHA) has a maximum claim amount on Home Equity Conversion Mortgages (HECMs), which is currently at $1,209,750. Therefore, for homeowners with property values that exceed this limit, jumbo reverse mortgages present an attractive alternative to access a larger amount of equity.
A jumbo reverse mortgage is also called a proprietary reverse mortgage, a private reverse mortgage offered by financial institutions and lenders. Unlike FHA-insured HECMs, these loans are not subject to federal regulations, allowing for greater flexibility in loan amounts and other mortgage terms. These jumbo/ proprietary options are specifically designed for homeowners whose property values exceed the FHA maximum claim amount, but these options are also fantastic options for condominiums that are not approved by FHA (which is a requirement for the HECM).
Since FHA lending limits do not restrict proprietary reverse mortgages, they allow homeowners with high-value properties to access significantly more equity compared to a traditional HECM. This makes them ideal for homes appraised above the $1,209,750 threshold, all the way up to $10M. FHA-insured reverse mortgages require borrowers to pay mortgage insurance premiums (MIP), which add to the overall cost of the loan. However, proprietary reverse mortgages do not have this requirement for MIP, which can be a bonus for homeowners. Proprietary reverse mortgages offer flexible terms regarding lump sum payouts or line-of-credit options. This allows homeowners to tailor their loan structure to fit their financial needs and retirement goals. Because these loans cater to higher-value homes, they often allow borrowers to access more of their home’s equity, which can be crucial for funding long-term care, home renovations, or other significant expenses. While HECMs require borrowers to be at least 62 years old, proprietary reverse mortgage programs are available to homeowners as young as 55. This opens options for people who need financial flexibility before reaching the standard HECM age requirement.
While proprietary reverse mortgages offer notable advantages, borrowers should carefully evaluate their options. These types of reverse mortgages typically come with higher interest rates than FHA-insured reverse mortgages and may have different repayment terms. However, like FHA reverse mortgages, the proprietary options have the same non-recourse guarantees that ensure borrowers or their heirs never owe more than the home’s value.
If you own a high-value home and need access to more equity than an FHA-insured reverse mortgage allows, a proprietary reverse mortgage could be an excellent option. Consulting with a reverse mortgage specialist can help determine whether this type of loan aligns with your financial goals and retirement planning needs.
By Gabe Bodner