Exciting options for homeowners age 62 and older.
New products have been designed for those with high-value homes or condos that don’t qualify for standard Home Equity Conversion Mortgages (HECMs), commonly known as reverse mortgages. These “jumbo” home equity products allow people with high-value homes to access more cash than a traditional HECM, while taking advantage of many of the benefits of traditional reverse mortgages.
Why more people are tapping into home equity as part of a comprehensive senior retirement planning strategy.
For many of today’s older adult homeowners, their largest retirement asset is their home—by far. In fact, according to the National Reverse Mortgage Lenders Association, total home equity for America’s homeowners age 62 and older reached a record $7.05 trillion during the fourth quarter of 2018.
How people can take advantage of this vast, untapped pool of wealth.
In retirement, investment assets can rise and fall in a volatile market—but older adults with high-value homes have the advantage of being able to access a significant amount of home equity. There are many reasons to consider drawing upon home equity using a jumbo reverse mortgage:
- Use the loan proceeds to avoid tapping into investment assets
- Make home improvements or modifications in order to “age in place”
- Pay off an existing mortgage or other large debts
- Help family members with their financial needs
- Help cover rising medical, long-term care, or in-home care costs
- Buy an investment property or a vacation home
Simply put, older adults with high-value homes have invested a lot of time, effort, and money into their homes—why shouldn’t they start getting more out of them when they need it most?
How seniors can supplement their income in retirement.
A jumbo reverse mortgage can be a useful senior retirement planning tool. Many homeowners simply use the loans to pay off an existing mortgage so they can use that monthly cash for something else, help reduce other retirement debt, or supplement their monthly income.
And research shows that mortgage debt in retirement is significantly more prevalent than it used to be, weighing down the retirement finances of more and more American seniors.
A 2016 study by the LIMRA Secure Retirement Institute found that in 2013, 43% of homeowners aged 65 to 74 had a mortgage, with the average debt approximately $136,000. Compare that to 1989, when only 11% carried an average mortgage debt of $29,000. These monthly mortgage payments can put a significant drain on senior retirement plans.
An expert weighs in on the reverse-mortgage-in-retirement strategy.
Dr. Wade Pfau, Professor of Retirement Income at The American College of Financial Services, concluded that “strategic use of a reverse mortgage can improve retirement outcomes” in his 2015 work, “Incorporating Home Equity into a Retirement Income Strategy.”
“For most Americans,” he wrote, “home equity and Social Security benefits represent the two biggest assets on the household balance sheet—frequently dwarfing the available amount of financial assets.”
In 2017, Dr. Pfau updated his analyses based on changes to the HECM program. He concluded in an October 2018 article that, arguably, the new rules made using a reverse mortgage to pay off an existing mortgage to reduce fixed payments in the early years of retirement—the most popular use for a reverse mortgage—even more attractive.
Older adults with high-value homes who are putting their retirement plan together—or those already in retirement who want to update their strategy—may consider asking their financial advisor about a jumbo reverse mortgage.
A jumbo reverse mortgage vs. a standard HECM.
Let’s start with the similarities: both types of loans allow older homeowners age 62 and older to convert a portion of their home equity into cash that they can use for any purpose—with no monthly mortgage payments required.1
Loan amounts increase over time, with payment due when the last borrower passes away or permanently leaves the home. As long as they meet their responsibilities—paying property taxes, homeowners insurance, and home maintenance costs—borrowers continue to own their home. Both loans involve financial counseling to ensure that it’s a good fit for the borrower.
How much a borrower can receive is based on how much home equity they have, the age of the youngest borrower on the loan, and current interest rates. In general, the more home equity they have and the older they are, the more they can receive.
But there are some important differences:
- For homeowners age 62 and older with high-value homes or condos that don’t qualify for a standard HECM, a jumbo reverse mortgage allows homeowners to access more of their home’s equity than a standard HECM—up to $4M tax-free.2
- With a jumbo reverse mortgage, borrowers can receive 100% of the proceeds upfront.
- A jumbo reverse mortgage typically does not require mortgage insurance premiums.
- Interest rates for a jumbo reverse mortgage are typically higher than a traditional HECM.
- Unlike a standard HECM, a jumbo reverse mortgage is not insured by the Federal Housing Administration (FHA)—however, most lenders offer borrower protections similar to FHA guidelines. Homeowners considering a jumbo reverse mortgage should ask their lender how its policies compare.
Jumbo reverse mortgage products such as Longbridge Platinum offer a Fixed-Rate Program for those looking for a full-draw loan at a low, fixed rate; or a Line of Credit Program for seniors who want some upfront cash now and a reusable, growing line of credit for the future.
A jumbo reverse mortgage vs. a standard Home Equity Line of Credit (HELOC).
Many senior homeowners choose a standard HELOC to access their home equity and improve their cash flow in retirement. Unfortunately, most never consider a jumbo reverse mortgage—which offers more flexibility as compared to a HELOC, and as a result may be an attractive alternative for many older adults. Here’s a closer comparison between a Longbridge Platinum jumbo reverse mortgage and a standard HELOC:
| PLATINUM LOC | STANDARD HELOC | |
|---|---|---|
| Ownership | Both types of loans allow you to own and keep the title of your home | |
| Payments | No monthly mortgage payments required1 | Requires monthly mortgage payments |
| Interest deduction | You can deduct the interest, if optional payments are made | You can deduct the interest |
| Line of credit growth | Reusable, growing line of credit— the unused portion can grow for 7 years3 | Line of credit does not grow over the life of the loan |
| Payoff and redraw | Access up to 75%4 of the Principal Limit during the first 10 years—with the ability to redraw repaid principal amounts | Can pay off and redraw during the first 10 years, but there may be a penalty |
| Rate adjustments | Every three months | Every month |
| Payback deadline | None, as long as you meet the terms of the loan and remain in your home | Typically comes due after 10 years |
| Prepayment penalty | No penalty for early repayment | Prepayment penalties can be charged in some cases—ask your lender |
| Non-recourse loan protection | You and your heirs aren’t personally liable if the loan amount exceeds the home value when it comes due | No such protection |
| Counseling | Independent, Platinum-approved counseling helps you fully understand your options | No independent counseling provided |
| Qualifications | Must be a homeowner age 60+* and use the home as your primary residence | Must qualify based on credit score and income |
Which jumbo reverse mortgage should you get? There are a wide range of options available. Make sure to shop around and ask the lender what the costs and fees would be. Longbridge Financial, LLC, offers Longbridge Platinum—an affordable jumbo reverse mortgage with a reusable, growing line of credit option. It offers the widest range of eligible home values, attractive low-rate, low- or no-cost options, and a streamlined approval process. It can be an attractive alternative to a standard HELOC, as there are no monthly mortgage payments required, as long as you meet the loan requirements.
Ask your financial advisor about a jumbo reverse mortgage in retirement.
Taking a loan against your home is a big decision. Ask your trusted financial advisor if a jumbo reverse mortgage may be right for you to help pay off an existing mortgage, increase your cash flow, or help preserve your investment assets as part of your overall retirement plan to help you meet your goals.
To learn more about jumbo reverse mortgages, simply fill out the form on this page to get a FREE Information Kit from Longbridge Financial, a leader in the reverse mortgage industry.
1 Real estate taxes, homeowners insurance, and property maintenance required.
2 Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 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 an annual rate of 1.5% compounded monthly.
4 Except for the first 25% taken at closing.
*State exclusions apply.
