Jumbo Reverse Mortgages: The Savvy HELOC Alternative for Retirees

Discover the transformative key to enhanced financial well-being in your golden years.

Updated August 7, 2024

Today, the traditional “three-legged stool” of retirement planning—pensions, personal savings, and Social Security—is often insufficient for many seniors. Fortunately, there is another largely untapped source of wealth right in their homes.

With home values at record highs, seniors are increasingly tapping home equity to improve their cash flow and enhance their retirement lifestyle. However, many remain unaware of the various financial tools available to leverage their home equity effectively.

If you’re looking to boost your retirement cash flow, it’s essential to explore the home equity solutions and programs at your disposal.

While home equity lines of credit (HELOC) have long been among the most popular financial tools, new private, non-Federal Housing Administration (FHA) reverse mortgage programs—commonly known as “jumbo” loans —such as Longbridge Platinum, have emerged as valuable lower-cost alternatives.

Exploring Jumbo Reverse Mortgages

A jumbo reverse mortgage is a loan for those with high home-values. Available to homeowners least 55 years old,¹ a jumbo reverse mortgage could provide access to greater home equity amounts than available with a traditional reverse mortgage loan, also known as a Home Equity Conversion Mortgage (HECM), which has a lending limit set by the FHA.

At Longbridge, we prefer to call jumbo reverse mortgages private or proprietary reverse mortgages. And here’s why:

A vast majority of consumers have home values that fall within the range of the standard FHA-insured HECM. That’s the typical “reverse mortgage” you hear about. But unfortunately, the program comes with a cost, with the required Housing of Urban Development (HUD) mortgage insurance premium (MIP).

So, the critical difference between the HECM reverse mortgage and the private (or jumbo) reverse mortgage is that the private option comes with additional flexibility, while still offering the same core benefits and most of the same protections. More importantly, the private option often comes at a lower cost than a HECM.

So, which one makes the most sense for your situation? We’ve compiled some of our customer’s most frequently asked questions about jumbo reverse mortgages to help you understand your options.

• How does a reverse mortgage compare to a standard HELOC?
  HECM and jumbo reverse mortgages alike help seniors manage cash flow and boast consumer protections, including required counseling, non-recourse loan protection, financial assessments, and safeguards for eligible non-borrowing spouses. They offer flexibility without the risk of payment spikes down the line.

  And while a HELOC may be a more familiar option, it may not always be the most appropriate option, especially for retirees facing a reduced income. For instance, many people get a HELOC while working, but 10 years later, in retirement, their cash flow may be only 75-80% of what it was. When HELOC payments spike, it can cause serious cash flow problems, often leading them to refinance into a reverse mortgage, which proves to be a better long-term choice.

  Another key differentiator of a reverse mortgage is that, unlike a HELOC, there are no monthly mortgage payments required – so long as you keep up with loan obligations such as paying property taxes, homeowners insurance, and home maintenance. This presents a major savings opportunity every month – and an opportunity to free up even more cash flow.

  It’s also important to consider the stability of both loans. HECMs cannot be frozen or reduced at any time. This is not the case with a HELOC, as lenders can freeze accounts at any time. In fact, during the early days of the COVID-19 pandemic, major banks and forward mortgage lenders were forced to suspend HELOC applications and originations altogether.

• What are the main similarities between a HECM and a jumbo reverse mortgage?
  While there are many similarities between the HECM reverse mortgage and jumbo reverse mortgage programs, perhaps most notable feature is optional monthly mortgage payments.² That’s right – both the HECM and jumbo reverse mortgage programs offer you the flexibility to make payments toward the loan balance as often as you wish, or none at all², deferring the loan balance until a maturity event.

  Another key similarity is that both types of reverse mortgage loans offer non-recourse protection. This safeguard ensures you cannot owe more on the loan than what the home is worth at the time of its sale, even if it depreciates in value. This not only protects you, as a borrower, but also your estate, and children who may inherit the home from any personal liability.

• What are the primary differences between an HECM reverse mortgage and a jumbo reverse mortgage?
  The main difference is that HECM reverse mortgages are federally regulated and require mortgage insurance premiums, while jumbo reverse mortgages are not. Most reverse mortgages cost about 3-4% of the home value, with 2% going to FHA insurance. With jumbo reverse mortgage programs like Longbridge Platinum, closing costs are lower, similar to a standard “forward” mortgage, without the 2% FHA fee.

  For example, on a $500,000 home, FHA insurance would cost $10,000 upfront. A jumbo reverse mortgage eliminates this and the ongoing 0.5% fee, making it a more cost-effective option.

  Another difference between the two loans is the lending limit. While HECM reverse mortgages are subject to a maximum national lending limit set by the FHA, jumbo reverse mortgages are not, which could allow you to access greater amounts of equity and more cash.

  In many cases, jumbo reverse mortgages also offer expanded eligibility based on property requirements. For example, condos are generally eligible for a HECM, but they must be approved by the FHA. Jumbo reverse mortgages, like Longbridge Platinum, have less stringent condo eligibility requirements.

• Why should someone consider a jumbo reverse mortgage?
  A jumbo reverse mortgage is beneficial for various scenarios, particularly for those with high home values seeking to access greater amounts of equity than available with a HECM. It can also be beneficial for those with properties that don’t meet the standards set by the FHA for HECM borrowers This additional cash flow can be used as you wish – including to pay off an existing mortgage (a requirement of the loan) or consolidate debts. In many cases, a jumbo reverse mortgage offers significant savings as compared to the FHA HECM.

  Plus, jumbo proprietary products, like Longbridge Financial’s Platinum Line of Credit are designed specifically to provide the flexibility, interest rate, and relatively low costs similar to a HELOC—but with reverse mortgage benefits tailored to meet the financial needs of retirees. It’s a better fit for many older borrowers than a traditional HELOC.

• Why do reverse mortgages tend to have a negative connotation?
  Reverse mortgages have long endured a negative connotation due to outdated perceptions. However, the program has undergone significant improvements while maintaining its core mission: enabling seniors to safely access their home equity.

  Initially, when the FHA introduced reverse mortgages, there were no income or credit standards in place—if you were 62, you qualified. This inclusivity aimed to make the program accessible but led to unintended consequences. Many who wouldn’t typically qualify for financing, or for whom a reverse mortgage wasn’t suitable, faced foreclosure. This included clients with recent bankruptcies who used reverse mortgages as a temporary fix.

  Recognizing these issues, the government has since overhauled the underwriting guidelines, moving from no standards to common-sense criteria. Now, we prioritize the creditworthiness and financial stability of our clients to ensure they can live in their homes safely and sustainably for the rest of their lives. As such, additional requirements have been added to the HECM loan process, designed to protect borrowers.

  Reverse mortgage counseling involves meeting with an independent, third-party counselor approved by the US Department of Housing and Urban Development (HUD) counselor to discuss the reverse mortgage for your unique situation, explore alternative financial solutions, and answer any remaining questions you have.

  Since 2015, reverse mortgage borrowers must complete a HUD Financial Assessment, intended to prevent default and foreclosure. This assessment aims to ensure you can handle responsibilities such as property taxes, homeowners’ insurance, and home maintenance. Your lender will also request a credit check to confirm a history of timely payments and verify that you have sufficient financial resources to meet the loan requirements.

• Why should you (or a loved one) consider Longbridge Platinum for a jumbo reverse mortgage?
  In two words: consistency and relationships. Longbridge stands as a consistent and stable full-service lender and servicer you can rely on, even during economic downturns. Our proprietary reverse mortgage, Longbridge Platinum, remains among the most consistent and competitive jumbo program offerings available.

  Here’s a snapshot of how Longbridge’s Platinum line of credit (proprietary reverse mortgage) stacks up against a standard HELOC loan:

• Similarities:
  • Both give you the flexibility to pay off and redraw for 10 years
  • You own and keep the title to your home – so long as you meet loan obligations such as paying property taxes, homeowners insurance, and home maintenance expenses
• Platinum Advantages:
  • Credit line grows over time³
  • No required monthly mortgage payments² or prepayment penalties
  • Non-recourse protection = you and your heirs aren’t personally liable if the loan amount exceeds the home value when the home is sold and the loan is repaid
  • No accelerated payment after 10 years
  • Cannot be frozen/canceled like a HELOC

At Longbridge, we’re committed to responsibly helping homeowners like you reshape their financial future by educating them on the strategic use of home equity – and helping them unlock the power of their homes. Our mission is to transform the reverse mortgage industry through unmatched client service, expertise, and transparency. Our team of seasoned professionals will get to know you, and take the time to understand your situation, so we can offer solutions that are suited to your needs.

Above all, we are committed to serving our clients over their lifetime. Our goal is to be the only mortgage company you’ll ever need, fostering a special relationship that we deeply value.

To learn more about reverse mortgages and alternative solutions to a HELOC, contact the Longbridge team today.