Jumbo Reverse Mortgage and Proprietary Reverse Mortgage Loans

Reverse Mortgage Information for Owners of High Equity Homes

If you are interested in Reverse Mortgages and your home is of a high value relative to most homes in your county, then you should learn more about Jumbo Reverse Mortgage loans – also known as Proprietary Reverse Mortgages.

There are three types of reverse mortgages:

• the HECM
• the HomeKeeper
• Jumbo Reverse Mortgages

The HECM is the most popular reverse mortgage because if offers the highest amount of money to homeowners of average-valued houses. However, for homeowners of high value homes – usually homes valued at $400,000 or more – a jumbo reverse mortgage will usually enable you to borrow significantly higher amounts of money.

Your zip code, the value of your home and your age are the criteria that lenders use to determine how much money you are allowed to borrow through a Reverse Mortgage. Depending on these factors, a Jumbo Reverse Mortgage could potentially offer you more than double the cash available to you from the HECM.

Review the following table to learn more about how much money the different kind of loans might offer you.

Comparison of Loan Amounts for Typical High Value Homes -- California Reverse Mortgages, Florida Reverse Mortgages and More

Location	Home Value	Outstanding Mortgage/Age of Borrower	HECM Loan Amount	Jumbo Reverse Mortgage Loan Amount
Beverly Hills, CA	$500,000	0 / 70 yrs old	$203,562	$197,571
Beverly Hills, CA	$1,000,000	0 / 70 yrs old	$203,562	$397,246
Wheaton, Illinois	$500,000	0 / 70 yrs old	$153,243	$198,115
Wheaton, Illinois	$1,000,000	0 / 70 yrs old	$153,243	$397,650
Rochester, NY	$500,000	0 / 70 yrs old	$108,999	$196,215
Rochester, NY	$1,000,000	0 / 70 yrs old	$108,999	$394,987
Palm Beach, FL	$500,000	0 / 70 yrs old	$199,280	$193,440
Palm Beach, FL	$1,000,000	0 / 70 yrs old	$199,280	$388,869

* Note: These figures are estimates for comparison purposes only. Actual loan amounts for the HECM annual ARM will differ due to changes in interest rates. Loan amounts also vary among competing Jumbo Reverse Mortgage products.

Although the difference in loan amounts between a HECM and a Jumbo Reverse Mortgage is minimal for a home valued at $500,000, this table shows that the high value home owner can borrow two or many more times the amount with a Jumbo Reverse Mortgage on a $1 million home.

What is a Jumbo Reverse Mortgage or Proprietary Reverse Mortgage?

Jumbo Reverse Mortgages – also known as Proprietary Reverse Mortgages – are Reverse Mortgages that are structured and backed by private companies. (The HECM, by contrast is structured and backed by the federal government.)

Any broker licensed by the Federal Government can offer the HECM and any broker licensed by the private company that structured a proprietary reverse mortgage can offer that product.

How does a Jumbo Reverse Mortgage differ from other Reverse Mortgages?

A Jumbo Reverse Mortgage is a Reverse Mortgage product designed for high value homes – typically homes valued above the $400,000 to $500,000 level although the specifics of the loan would depend on the borrower’s age and location. (Homes of more average values are eligible for a Jumbo Reverse Mortgage, but you would want to compare the benefits of the Jumbo vs. the HECM and Fannie Mae products.)

So, the main difference is simply that it is possible to get more money out of a high value home with a Jumbo Reverse Mortgage than from other Reverse Mortgage products.

The structure of a Jumbo Reverse Mortgage is similar to standard HECM and Fannie Mae Reverse Mortgage programs -- you get money out of your home without having to pay it back until you sell or leave and you live in and retain ownership of your home. There are no loan payments with a Jumbo Reverse Mortgage and the money you take out can be used for any purpose. And, like the HECM, the amount you owe on the loan will never exceed the value of the home.

However, the payouts on a Jumbo Reverse Mortgage are somewhat more limited than those available with a HECM or Fannie Mae Reverse Mortgage. With the HECM and Fannie Mae Reverse Mortgage, the homeowner can opt to take their loan as:

• Monthly income: Opting to receive monthly income from a reverse mortgage is similar to purchasing an annuity.
• Lump sum payment: With a lump sum payment, you are opting for a lump sum of cash from your home. The money can be used for any purpose, but you are paying interest on the total lump sum.
• Line of credit: A line of credit gives a Reverse Mortgage borrower access to all of the cash available from their home in a line of credit. The advantage of a line of credit is that the borrower only pays interest on the money that they use, not the total amount of money available to them in the line of credit.

The availability of Jumbo Reverse Mortgages varies between states. Some Jumbo Reverse Mortgage plans are not available in every state.

However, with a Jumbo Reverse Mortgage the monthly income option is not available. You must take your reverse mortgage loan as a lump sum or line of credit.

Who offers a Jumbo Reverse Mortgage? What Are the Different Kinds of Jumbo Reverse Mortgages?

Jumbo Reverse Mortgages are Reverse Mortgage loans structured by private firms. Like the HECM and Fannie Mae product, they are heavily regulated, but they are proprietary products offered directly by private institutions.

These products have evolved quite a lot recently and it should be anticipated that additional changes and new products will continue to be introduced. The following is an overview of the jumbo reverse mortgage products offered by some of the biggest Reverse Mortgage lenders.

• Financial Freedom: Financial Freedom structured the first proprietary Jumbo Reverse Mortgage program, the Financial Freedom Cash Account Advantage. The Cash Account Advantage program is available from Financial Freedom as well as other lenders.
• Wells Fargo: Wells Fargo is licensed to broker the Financial Freedom Cash Account Advantage product.
• Generation Mortgage: Generation Mortgage offers a jumbo Reverse Mortgage product called, "Generation Plus."
• Bank of America: Bank of America offers The Independence Plan, a Jumbo Reverse Mortgage originally created by Reverse Mortgage of America which is now owned and operated by Bank of America.
• Countrywide: Countrywide offers a jumbo Reverse Mortgage product called Simple Equity. This Jumbo product represents a large percentage of Countrywide’s Reverse Mortgage loans.
• BNY Mortgage/Everbank: BNY Mortgage offers two versions of a jumbo Reverse Mortgage product: the Prime Advantage Fixed Rate Reverse Mortgage and the Prime Advantage Adjustable Rate Mortgage.

Click here to be directed to a lender that offers a Jumbo Reverse Mortgage.

What are the downsides of a Jumbo Loan or Jumbo Reverse Mortgage?

The obvious downside is the same as the upside… with a Jumbo Loan, you are simply borrowing more money. And, if you take out that money in cash then you will be paying more interest.

Furthermore, as you will see below, the interest rates charged on Jumbo Reverse Mortgage loans can be higher than those charged on a HECM.

However, a Jumbo Reverse Mortgage enables you to take your money as a line of credit where you only pay interest on the sum you actually use. And, as with all Reverse Mortgages, you don’t have interest payments nor will you ever owe more than the value of the home. And, so long as you reside in the home, you will always retain ownership.

How do interest rates differ on Jumbo Reverse Mortgages vs. the HECM?

As noted above, the interest rates on a Jumbo or Proprietary Reverse Mortgage can be – though not always – higher than the interest rate charged on the HECM.

The tricky part about comparing Reverse Mortgage interest rates is that it is not always like comparing apples to apples. Different loan programs calculate their interest rates differently from each other. However, the structure is usually the same – they add a "margin" to a "base interest rate."

• The base rate is an established interest rate index that adjusts regularly like the 1-year Treasure Bill or the 6-month London InterBank (LIBOR).
• The margin is the amount the lender charges on top of the base rate.

Below is a summary of how interest is determined for various Jumbo Reverse Mortgage products, as well as the HECM. All figures are accurate as of September 1st, 2007.

• The Cash Account Jumbo Reverse Mortgage - Wells Fargo and Financial Freedom
  • Index Base Rate: 6-month London InterBank (LIBOR)
  • Margin: 3.5 percent
  • How often the rate adjusts: Ever six months
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 6 percent.
  
  So, if today’s 6-month InterBank (LIBOR) is 5.3817 percent, then the interest rate you would be paying on the Cash Account would be:
  • 8.8817% – and could go up to 14.8817%


• Generation Plus Jumbo Reverse Mortgage - Generation Mortgage
  • Index Base Rate: 1-month London InterBank (LIBOR)
  • Margin: 3.125 percent
  • How often the rate adjusts: monthly
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 8 percent.
  
  So, if today’s 1-month InterBank (LIBOR) is 5.3195 percent, then the interest rate you would be paying on the Generation Plus Reverse Mortgage would be:
  • 8.4445% – and could go up to 16.4445%


• The Independence Plan Jumbo Reverse Mortgage - Bank of America
  • Index Base Rate: 6-month London InterBank (LIBOR)
  • Margin: 2.10 percent or 3.60 percent
  • How often the rate adjusts: Every six months
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 6 percent.
  
  So, if today’s 6-month InterBank (LIBOR) is 5.3817, then the interest rate you would be paying on the Independence Plan Jumbo Reverse Mortgage would be:
  • 7.4817 % – and could go up to 13.4817 %
  • or 8.9817 % – and could go up to 14.9817 %


• Simple Equity Jumbo Reverse Mortgage - Countrywide Bank
  • Index Base Rate: 6-month London InterBank (LIBOR)
  • Margin: 3.5 percent
  • How often the rate adjusts: Every six months
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 6 percent.
  
  So, if today’s 6-month InterBank (LIBOR) is 5.3817, then the interest rate you would be paying on the Simple Equity Jumbo Reverse Mortgage would be:
  • 8.8817 % – and could go up to 14.8817 %


• Prime Advantage Fixed Rate Jumbo Reverse Mortgage - Bank of New York
  • Index Base Rate: Not applicable
  • Margin: Not applicable
  • How often the rate adjusts: Not applicable
  • Interest Rate Cap: Not Applicable
  
  This jumbo Reverse Mortgage product offers a fixed rate. This rate is determined by the bank, rather than an index. The rate does not adjust, it is fixed.
  • On July 26, 2007, the interest rate on the Prime Advantage Fixed Rate product was: 9.265% and that rate would remain fixed for the life of the loan.


• Prime Advantage Adjustable Rate Jumbo Reverse Mortgage - Bank Of New York
  • Index Base Rate: Prime
  • Margin: .99 percent (but, no margin is charged for the first three months of the loan)
  • How often the rate adjusts: monthly
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 5 percent.
  
  So, if today’s Prime Rate is 8.25, then the interest rate you would be paying on the Prime Advantage Adjustable Rate Reverse Mortgage would be:
  • 9.24% – and could go up to 14.24%

Comparing Jumbo Interest Rates to the HECM:

So, as seen above, interest rates on these Jumbo Reverse Mortgage loans could be as low as 7.4817 – adjusting upward to a high of 16.445 if the index base rate goes up significantly.

The HECM, by comparison, could be as low as 6.461 and go up to as much as 16.461 if the index base rate increases significantly.

But always remember that the Jumbos are offering you more money – so whatever interest rate you are paying is being applied to a greater sum than the HECM.

• The HECM 150 Annual Adjustable Rate Reverse Mortgage
  • Index Base Rate: 1 year Treasury Bill
  • Margin: 3.1 percent
  • How often the rate adjusts: Annually
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 5 percent.
  
  So, if today’s 1 year T-Bill Rate is 4.961%, then the interest rate you would be paying on the HECM Annual Adjustable Rate Reverse Mortgage would be:
  • 8.061% – and could go up to 13.061%


• The HECM 150 Monthly Adjustable Rate Reverse Mortgage
  • Index Base Rate: 1 year Treasury Bill
  • Margin: 1.5 percent
  • How often the rate adjusts: Monthly
  • Interest rate cap (This is the highest interest rate that could possibly be charged to the borrower): Initial fully indexed rate + 10 percent.
  
  So, if today’s 1 year T-Bill Rate is 4.91%, then the interest rate you would be paying on the HECM Monthly Adjustable Rate Reverse Mortgage would be:
  • 6.461% – and could go up to 16.461%. Note that the interest rate on the HECM 150 Monthly Adjustable Rate Reverse Mortgage can vary somewhat between lenders.

What About Fees and Closing Costs on Jumbo Loans?

So, interest rates are not your only concern with a loan. Fees and closing costs can add up and represent significant money.

And, of course, each Jumbo Reverse Mortgage loan has its own fee structure – different from HECM. Furthermore, in most cases the fees and costs charged by the lender will vary significantly based on factors like: the size of your loan, how you take out the money and more.

For example, in some cases the lender will offer the loan with no fees, provided that the borrower take a large portion of the available loan as a lump sum immediately.

Are There Limits on How I Spend My Jumbo Reverse Mortgage?

No.

There are are absolutely no limits on how you choose to spend your Jumbo Reverse Mortgage. While you must pay off any liens against your home, including any balance on your mortgage, retirees have used Jumbo Reverse Mortgages to fund:

• Travel
• Additional insurance
• Long Term Care
• Medical Procedures
• Vacation Homes
• Anything you want….

Are all houses eligible for a Jumbo Reverse Mortgage?

As mentioned before, a Jumbo Reverse Mortgage is a good option for someone with a high value home. More specifically, however, the type of home you live in can be a factor for a Jumbo Reverse Mortgage. The Jumbo Reverse Mortgage from Financial Freedom allows the following types of homes:

• Single-family detached homes
• Condominiums
• Planned Unit Developments (PUDs)
• 1 to 4 rental unit (one must be owner occupied)
• Co-ops (New York State only)
• Mobile Homes

What size Jumbo Reverse Mortgage Loan Do You Qualify For?

Our Reverse Mortgage Calculator will provide results showing the loan amount for all three types of reverse mortgages – the HUD HECM, Fannie Mae HomeKeeper and the Financial Freedom Cash Account.

Visit the Reverse Mortgage Calculator to find out how much money you can get out of your own home with a Reverse Mortgage.