What is a jumbo reverse mortgage?

Understanding jumbo reverse mortgages

During your senior years, you may need access to cash for major renovations, monthly bills or other expenses. But if your net worth is tied up in the property where you live, that can be problematic. A jumbo reverse mortgage can supply the cash you need while enabling you to remain in your home.

Traditional reverse mortgages, or HECMs, are backed by the Federal Housing Administration (FHA). However, HECMs are only available through FHA-approved lenders and are subject to lending regulations that may be overly limiting to individuals with high-priced property.

If your home is worth a higher amount and you’re seeking a loan that exceeds the maximum permitted by a HECM, a jumbo reverse mortgage may be an option.

“Jumbo reverse mortgages are offered by private lenders, whereas HECMs are federally owned,” said Seamus Nally, CEO of TurboTenant.

In general, a reverse mortgage is one in which the balance increases over time, but you can continue living in your home indefinitely (which makes it helpful for aging in place). With a reverse mortgage, including a jumbo reverse mortgage, you don’t make mortgage payments, but need to stay current on other fees like property taxes and homeowners insurance.

A jumbo reverse mortgage may also be called a proprietary reverse mortgage.

Loan limits and amounts in a jumbo reverse mortgage

The main reason to look into a jumbo reverse mortgage is the higher loan limit that enables you to take advantage of a high-value property.

“Jumbo reverse mortgages can provide borrowers with a far higher cash total, while HECMs have monetary limits,” explained Nally.

In particular, if you live in an area with a high cost of living, it can be harder to make the most of a reverse mortgage under HECM guidelines.

For 2024, FHA guidelines permit a maximum claim amount (the highest value your home can be assigned) of $1,149,825. Lenders must determine your maximum HECM loan based on that value, but if you would like to borrow more, you’ll need a jumbo reverse mortgage instead.

Lenders such as Truss Financial Group and Fairway Independent Mortgage Corporation offer jumbo reverse mortgages of up to $4 million, well above the federal limit for a HECM. The loan amount permitted depends on interest rates and the age of the borrower as well as the property value.

In addition to higher maximum loan values, some lenders grant jumbo reverse mortgages to borrowers aged 55 and older, whereas the U.S. Department of Housing and Urban Development (HUD) requires HECM borrowers be at least 62 years old.

» MORE: Reverse mortgage requirements

How does a jumbo reverse mortgage work?

In order to obtain a jumbo reverse mortgage, you must continue living in the home you currently own. You’d borrow against your current equity, which typically must be at least 50% of the home’s value, though some jumbo reverse mortgage lenders may vary requirements.

Similar lending requirements are often implemented for both regular and jumbo reverse mortgages. For example, at Guild Mortgage Company, borrowers must meet the following criteria, whether for a reverse mortgage or a jumbo reverse mortgage:

• Live in the mortgaged home as your primary residence throughout the program
• Continue to pay property taxes, homeowners insurance and any applicable homeowners association dues
• Borrowers and nonborrowing spouses need to attend a HUD-sponsored counseling session

Once you’ve established your property’s value and current equity, your lender will determine the loan it is willing to offer. The higher your equity in the home, the more you may qualify for.

Credit score and age are also factors. You’ll usually need to complete a HUD-approved counseling session to ensure you understand the type of mortgage product you’re undertaking.

Origination fees will also apply — with a federally backed reverse mortgage, those fees cannot exceed $6,000, but check with your jumbo reverse mortgage lender to verify what it charges.

The jumbo reverse mortgage essentially pays off your remaining mortgage, if there is one. Then you will receive the proceeds of the loan, either as a lump sum or a line of credit.

Jumbo reverse mortgages are typically nonrecourse loans. This means your loan balance will never rise above the appraised value of your home. Importantly, this means the lender can’t hold you personally liable for the debt; only the home serves as collateral.

Once you close on the jumbo loan, you typically have three days to cancel should you change your mind.

» COMPARE: Best reverse mortgage lenders

When do you have to repay a jumbo reverse mortgage?

Unlike a traditional mortgage, you won’t make regular payments on a jumbo reverse mortgage. Instead, the balance of the loan is due when the last surviving spouse dies or when you move out of the home.

Other points at which a jumbo reverse mortgage comes due include when the borrower no longer meets the requirements of the mortgage, such as keeping current on property taxes and other costs.

If the borrower must move out of the home due to illness for over 12 consecutive months, the lender can require payment, although a nonborrowing spouse remaining in the home may avoid foreclosure.

» MORE: Can you refinance a reverse mortgage?

Pros and cons of jumbo reverse mortgages

As with other types of mortgage loans, a jumbo reverse mortgage isn’t for every borrower. Consider each of the pros and cons before signing up for this type of loan.

“Being federally owned, that means that rates for HECM are federally established, while for jumbo reverse mortgages, they are up to the private lenders, which means they could be far better or far worse,” said Nally.

While the lax regulations can offer greater flexibility, they also offer fewer protections for the borrower.

If you’re not concerned about leaving a home to heirs, a jumbo reverse mortgage can help you access greater equity and continue living at home.

» MORE: Pros and cons of reverse mortgages

Bottom line

Reverse mortgages enable homeowners to access equity while continuing to live in their homes, and jumbo reverse mortgages take it one step further by increasing maximum loan limits and lowering the age requirement to qualify. However, jumbo reverse mortgages don’t offer the same protections as federally backed reverse mortgages.

While a jumbo reverse mortgage can offer financial breathing room in your later years, you should proceed carefully, given the lack of regulation. You might consider whether options like a home equity loan or home equity line of credit (HELOC) would infuse your retirement with the cash you need.