Reverse Mortgages in
What is the Difference Between a HECM and Jumbo Reverse Mortgage?
If you’re over the age of 60 and you own a home in Malibu, you’ve probably heard of a Home Equity Conversion Mortgage (HECM), more commonly referred to as a reverse mortgage. You may have even heard of a jumbo reverse mortgage. The terms are so similar, you might think that a HECM is the same thing as a jumbo reverse mortgage. While they are like each other, a jumbo reverse mortgage differs from a HECM in some significant ways. Read on to learn more about how these two kinds of loans stack up to each other.
A reverse mortgage is a loan that turns the equity on your home into cash. To qualify, you must be at least 62 years of age, own your home and use it as your primary residence, and maintain your home in good condition, among other things. You can receive payment for your reverse mortgage in a variety of ways, including a monthly payment, a line of credit, a lump sum, or a combination of two or three of these options. You can also get a reverse mortgage for purchase to help finance downsizing or moving to another home.
Since a reverse mortgage is a loan, the money you borrow accrues interest over the life of the loan. As opposed to a regular mortgage, however, with a reverse mortgage, you do not make a monthly interest payment. You pay all of the interest accrued on the loan at the end of the mortgage’s life. You continue to have to pay your property taxes, hazard insurance, and HOA fees, if applicable.
The Federal Housing Administration (FHA) insures HECMs, which means there is a federal lending limit of $679,650 for a one-family home or a Multifamily home (1-4 Units) on this kind of loan. If you’re looking to borrow more than that, you might want to pursue a jumbo reverse mortgage.
Jumbo Reverse Mortgage
A jumbo reverse mortgage, also called a proprietary reverse mortgage, is an alternative to a more common FHA-insured loan. Since this kind of loan is not insured by the FHA, there is no federal lending limit on it. Without a lending limit, the loan amount of a jumbo reverse mortgage can be as high as $6 million, depending on the value of your home.
Aside from avoiding lending limits, you may also want to get a jumbo reverse mortgage if your home does not qualify for an FHA-insured reverse mortgage. Some homes, or some condos or other planned developments, do not meet the FHA’s requirements for a reverse mortgage, or they may simply not be FHA-approved. To help these homeowners get the funds they need, reverse mortgage lenders offer proprietary loans.
Both a reverse mortgage and a jumbo reverse mortgage have their advantages—like the ability to purchase a new home—and their drawbacks, like reverse mortgage fees. Learn more about the reverse mortgage pros and cons to prepare yourself financially for your retirement.
Are you in Malibu and ready to get a reverse mortgage? Apply today to get started on your loan.