To analyze the pros and cons of a jumbo reverse mortgage, we contrast jumbo with the traditional FHA. Unless you compare, you won’t be able to say why and how something is good or problematic.
Same way, whenever we think for jumbo, we try to understand the advantages and the drawbacks. This is part of the financial assessment. However, before going to the pros and cons of the jumbo, better we clarify what is a reverse mortgage and what is jumbo.
A reverse mortgage is one kind of cash-out refinancing. It allows homeowners to consume a certain amount of money against their home equity. Generally, if an owner is at least 62, can convert the property into spendable cash. The Federal Housing Administration (FHA) insures this type of loan. It terms them as Home Equity Conversion Mortgage (HECM).
On the other side, private firms do offer jumbo reverse mortgage. In such refinancing, the loan amount is higher than that of HECM. The jumbos are for homeowners with homes worth more than $800,000.
Anyway, now let us get into the core point. Let’s discuss the pros of a jumbo reverse mortgage first:
- Here you can borrow up to $6 million worth of home equity. By that amount, you can easily modify the home or buy an investment property as well.
- The home’s value knows no bound. You see, on an FHA reverse, value over $679,650 is ignored. Whereas you can utilize the upmost of the property you have! Though lenders do maintain the FHA protections.
- Jumbos are free of mortgage insurance premiums, 2% of house value, up-front mortgage insurance, 0.5% of the loan balance and annual mortgage insurance. So you can plan for a college fund for your grandchildren.
- In year one, you won’t have to face a 60% disbursement limit. Rather, you will be happy to see all proceeds are available at closing. You can tackle your other debts too.
- Jumbo is not an adjustable loan. That means the rate never changes.
- It allows you to avoid monthly mortgage payments. Also, it provides three different fixed-rate options.
- Even if the loan balance adds up to be higher than the home’s value, lenders tolerate the loss.
- You can pay off to debts and mortgages or liens under 12 months.
- Additionally, you can retain up to 4 financed properties.
And here are the cons of a jumbo:
- In jumbo, you have no federal guarantee. Rather, there is a compulsion to take the entire loan amount up-front at closing.
- There are seasoning requirements if you refinance an existing reverse mortgage. It requires a closing costs and loan proceeds test.
- Your govt. benefits can be in peril due to proceeds too.
- You will have to face approximately 2% higher interest rate than FHA reverse mortgage. It implies that your home equity will depart faster.
- You cannot get more money later as there’s no line of credit option.
- Jumbos have a $30 monthly servicing option added to the loan balance. You cannot enjoy any monthly income too.
- Paying taxes, insurance and maintenance costs is a must. In case of failure, you’ll have to leave your home!
- Your non-borrowing spouses don’t have the same protection.
- Chances are very high to owe more than the home’s value. Moreover, the lenders use the lower value when it requires more than one appraisal.
However, despite these cons, an experienced broker can help you taste the benefits of jumbo. Though it’s up to you to decide whether you’ll go for a jumbo or not.