A jumbo reverse mortgage: The HELOC substitute for seniors.

Today, it could be your best option to achieve financial well-being in retirement.

What’s the biggest, most often overlooked source of assets for the retiring senior? Home equity. If you’re not incorporating home equity into your overall financial planning, you could miss out on achieving your full retirement potential. Longbridge Financial is here with the information and guidance you need to make informed decisions—and make the most of your retirement.

Today, the traditional “three-legged stool” of retirement planning—pensions, personal savings, and Social Security—is no longer sufficient to fund retirement for many seniors. That’s why tapping into your home equity through a reverse mortgage can be the key to improving your monthly cash flow and living the retirement you imagine. And why more and more seniors are making home equity a part of their comprehensive retirement financial plans.

New private reverse mortgage programs (commonly known as “jumbo”), such as Longbridge Platinum, have become valuable low-cost alternatives to traditional Home Equity Lines of Credit (HELOC) for seniors with high-value homes who want to access home equity. They offer more available cash than a standard reverse mortgage, and more flexibility than a HELOC.

We asked one of our leading loan officers to answer some basic questions to help give you a better understanding of how a jumbo reverse mortgage can benefit you.

Q: What is a Jumbo Reverse Mortgage?

A: A jumbo reverse mortgage is a loan for homeowners age 62 or older with home values of $400,000 or more. It enables them to access home equity amounts that can potentially exceed the federally set limit of a standard Home Equity Conversion Mortgage (HECM).

But let’s take a quick step back…

At Longbridge, we don’t really like the term jumbo reverse mortgage.Instead, we prefer to call them private reverse mortgages or proprietary reverse mortgages. And here’s why:

About 99% of the consumer market is going to fall within the standard Federal Housing Administration (FHA) HECM. That’s the typical “reverse mortgage” you hear about. It’s very safe and it’s very regulated—but unfortunately, that regulation comes at a cost, with the required Housing of Urban Development (HUD) mortgage insurance.

So, the critical difference between the government 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 many of the same protections. More importantly, the private option comes without the high cost of an FHA reverse mortgage.

As you read on, it’s important to note that when we refer to a jumbo, private, or proprietary reverse mortgage, we are talking about the same thing.

Q: How does a reverse mortgage compare to a standard HELOC?

A: At its heart, a reverse mortgage is a safer version of a HELOC. Reverse mortgages and jumbo reverse mortgages are designed specifically to help seniors manage their cash flow. They have flexibility, without locking seniors into any possible payment spikes. That’s why it’s a much better product for seniors in retirement—unfortunately, many who could benefit from it don’t even consider it.

For every senior who chooses a reverse mortgage, nearly 11 choose a standard HELOC as a financing alternative1. So, while a HELOC may be a more familiar option, it’s often not the most appropriate option.

For example: many people get a HELOC while they’re still working—but the problem arises 10 years later when they’re living on a retirement cash flow that’s about 75-80% of what it used to be. When their HELOC payment suddenly spikes up 10 years after they’ve retired, it may create a serious cash flow problem. One that often results in customers refinancing from a HELOC to a reverse mortgage, once they realize that it’s the better choice in the long run.

Here’s a quick comparison between a Longbridge Platinum line of credit and standard HELOC loans:

Similarities:

  •  Both have the flexibility to pay off and re-draw for 10 years
  •  You own and keep the title to your home
  •  Must pay property taxes,homeownersinsurance and for home maintenance

Platinum Advantages:

  •  Credit line grows(1.5%)each month for 7 years2
  •  No required monthly mortgage payments3 or prepay penalties
  •  Non-recourse protection = no personal liability
  •  Lower cap rate
  • No accelerated payment after 10 years

Q: What are the main similarities between an FHA reverse mortgage 
and a jumbo reverse mortgage?

A: The core features and benefits are basically equivalent. We’ve captured the spirit of the HECM program in our private Longbridge Platinum reverse mortgage program—which, among other things, means flexible or no monthly payments required.3

It’s one of the best features of the standard reverse mortgage we’ve incorporated into Platinum: seniors can take money out, and get to choose whether or not they want to make payments on the loan. And that includes the option to make no monthly mortgage payments3 at all, by deferring the loan balance until they leave the home—as long as they meet the loan terms by continuing to pay for property taxes, homeowners insurance, and home maintenance, as usual.

The other core feature we’ve included is non-recourse protection. It’s a safeguard that means you cannot ever owe more on the loan than what the home is worth, even if it depreciates in value. This is to protect you, your estate, and children who may inherit the home from any personal liability.

Q: What are the primary differences?

A: The main difference is that a jumbo reverse mortgage doesn’t have the government oversight—which means that Longbridge Platinum doesn’t require FHA mortgage insurance premiums.

Most reverse mortgages cost about 3-4% of the home value—and out of that, a full 2% is also going toward FHA mortgage insurance. So, the actual closing cost of what we refer to as the “transaction cost” for Longbridge Platinum is actually pretty cheap; it has the same title and transaction fees as a regular “forward” mortgage.

Ultimately, a jumbo reverse mortgage saves 2% of the home value up front.

As an example, for a home valued at $500K, the 2% for government insurance would require $10,000 upfront. With a jumbo reverse mortgage, we don’t impose that 2% fee or the ongoing 0.5% fee, making it a more cost-effective loan in the long run, as well.

Q: Is there any overlap in the range of home values that qualify for FHA 
and jumbo reverse mortgages?

A: The government reverse mortgage goes from a $0 home value up to $726,525. The jumbo/private reverse mortgage starts at $400,000. So, the private reverse mortgage is a direct competitor to the FHA reverse mortgage in the range of $400K to $1,000,000.

Q: Why should someone consider a jumbo reverse mortgage to begin with?

A: There are many different scenarios in which a private reverse mortgage would be beneficial. The simplest is for those with a high home value who are looking to tap into home equity for needed cash to pay off a mortgage, a large debt, or for any other purpose.

Anyone who’s age 62 or older with a home value of $400,000 or more will see the benefit in saving money on a jumbo reverse mortgage as compared to the FHA option.

Plus, our new Platinum Line of Credit option is designed specifically to provide seniors with the same flexibility, interest rates, and relatively low cost origination that comes with a HELOC—but has reverse mortgage benefits that better align with a borrower’s financial needs during their retirement years. It’s simply a better fit for older borrowers than a HELOC.

Q: Are there any drawbacks to a jumbo reverse mortgage?

A: There are some cases in which seniors would not want to consider a private reverse mortgage. Typically, this would involve what we call “non-borrowing” spouses—those who reside in the home but are younger than age 62.

With an FHA reverse mortgage, there are protections that allow these spouses to stay in the home over the course of their lifetime. For example, if you have someone who is 62 and married to a 40-year-old, that 40-year-old can live in the house mortgage-free for the rest of their life. There are no such protections for non-borrowing spouses in a jumbo/private reverse mortgage.

Q: Why do reverse mortgages tend to have a negative connotation?

A: It stems from negative, “legacy thinking” about reverse mortgages. Changes have been made over the years to improve the design of the program, while staying true to its mission: allowing seniors to access their home equity in a safe manner.

When the FHA first rolled out the reverse mortgage program, the problem was that it didn’t have income credit or underwriting standards—if you were 62, you qualified for the program, period.

The intent was good: they wanted to make the program as accessible as possible. But it had an unintended consequence: it opened up the program to consumers who wouldn’t otherwise have qualified for financing, or for whom a reverse mortgage wasn’t the best option. And even though the majority managed to do well, there was a significant percentage of foreclosures. Many were clients who had a recent bankruptcy, and used the reverse mortgage as a “band-aid” solution.

Since then, the government has completely overhauled the underwriting guidelines. We’ve gone from no underwriting guidelines at all to common-sense guidelines. We care about the creditworthiness and financial stability of our clients. We want to make sure they’re able to live in their home in a safe and sustainable manner for the rest of their lives. That’s why we’re here.

Q: Why should a prospective borrower consider Longbridge Platinum for their jumbo reverse mortgage?

A: In a word: relationships. Longbridge is both a full-service lender and a servicer.

When you close on a reverse mortgage, we work hard to keep you as a client through personalized service. When you call us, we make sure you understand that a HECM is no longer the only and best option. We feature a full suite of products to find the best reverse mortgage option for you. We take pride in offering a variety of different home equity options that are designed for the 62+ generation.

Above all, Longbridge is dedicated to serving our clients over their lifetime. It’s our goal to be the only mortgage company you’ll ever need. At Longbridge, it’s a special relationship that we value deeply.

1 2016 Survey of Consumer Finances, The Urban Institute, November 2017.
2 If part of your loan is held in a line of credit you can draw from it for a period of 10 years—the unused portion will grow each month for 7 years, at a rate that’s equal to the sum of the interest rate plus the annual mortgage insurance premium rate.
3 Borrower must continue to pay property taxes, homeowners insurance, and for home maintenance.