Jumbo Affordable Reverse Mortgages Advantages
Update: Jumbo reverse mortgage loans served their purpose very well during 2006 - 2008. Due to the recent economic downturn and credit crunch as well as the newly raised HECM reverse mortgage loan limit, the Jumbo reverse mortgages are practically obsolete. Government backed HECM loans have now completely taken their place. HECM reverse mortgages have much higher loan limits then they used to, use our loan calculator to see how much you can get.
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If you read the recent news about mortgages you would have most probably ran across the new jumbo reverse mortgages. When we say jumbo, we mean that you can get a reverse mortgage loan in a jumbo amount. An advantage of this new jumbo program is that you can take out more money from your home equity. This makes jumbo reverse mortgages all the more affordable in eligible cases.
In ordinary reverse mortgage loans the FHA has set a maximum amount that any borrower can take out on his home. This maximum amount is based on the geographic location of the borrower and the area’s median home price. Jumbo reverse mortgages are actually, in theory, impossible. This is because the reverse mortgage program run by the Department of Housing and Urban Development (HUD) is tied to the limits set by the FHA. The HUD’s reverse mortgage program is also known as Home Equity Conversion Mortgages (HECM) reverse mortgages.
In practice, however, it is possible to get an affordable jumbo reverse mortgage. Instead of factoring in only a percentage of the area’s median home price, lenders now calculate a new reverse mortgage loan based on 100% of an area’s homes.
Is this good or bad news for seniors? Are the new jumbo reverse mortgages affordable?
Answer: it depends on the housing market of your area. It also depends on your social security and Medicare.
Reverse mortgages found their way into the market to help seniors survive their retirement years. Indeed, one of the known advantages of this program is that it helps seniors find relief from the shortness of their social security and Medicare benefits. However, with the old formula of HECM reverse mortgages, seniors do not get the full benefit of their home value. By using 100% of the median home price value, the new jumbo reverse mortgages offer seniors the advantages of having more liquid cash in their pockets.
Of course, some analysts are fast to highlight the potential disadvantages of jumbo reverse mortgages: if the market value of the house dwindles at the time of the borrower’s death, the sales proceeds of the home might not be enough to cover the loan (principal plus interest). Then again, one of the bottom line principals of all HECM reverse mortgages is that they were created for the advantage of seniors.
Whether they are jumbo or just regular-sized loans, the FHA will always insure reverse mortgages. This means the FHA will always repay the lenders all unpaid amount of the reverse mortgage loan. Jumbo reverse mortgages can mean bad news for the federal government if it has to pay all excess loan amounts that come in HUD’s way.
The government, however, has relief in the insurance premiums that it collects from reverse mortgage borrowers. The insurance premiums charged to reverse mortgage applicants’ equals 2% of the total loan amount. After the first year, the annual premium is then reset to .5% of the loan amount.
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