Homeowners looking to use a reverse mortgage to tap their home equity have a new option that could provide more in proceeds than the government insured HECM reverse mortgage product.
Scheduled to roll out in September, the HomeSafe is a private reverse mortgage product — also known as a jumbo reverse mortgage — from Urban Financial of America that is targeted at homeowners with homes valued upwards of $600,000.
Up until now, borrowers with higher home values have been limited by the amount of proceeds available through the federally-insured Home Equity Conversion Mortgage program, which currently sits at $765,600.
The return of jumbo reverse mortgages
For more than four years, the only private reverse mortgage product available was the GenerationPlus, which was meant for borrowers with home values of $1 million or more.
The announcement from Urban Financial of America ended what has long been a dry spell in private reverse mortgages, and more could be on the way according to a recent article by Bloomberg Businessweek.
While they resemble the HECM product, jumbo reverse mortgages come with some important features that make them different, providing more options and borrowing power for those with high valued homes.
How they’re different
1. They allow you to borrow more. While the HomeSafe has not yet released product specifications, the company says the new loan will most benefit those whose home values exceed $700,000.
2. They don’t require federal insurance. Private reverse mortgages don’t require insurance, so borrowers don’t face the same upfront or annual insurance premiums that they face when borrowing under the government-insured program.
3. They allow for non-FHA approved condos. The government’s reverse mortgage program only allows for properties that are FHA approved. Since many condos are not approved by the FHA, the private market opens more options for those condo owners.
How a jumbo reverse mortgage can help your retirement plan
A jumbo reverse mortgage can help you access your home equity in retirement and keep your home at the same time. If you meet the age and credit requirements, the HomeSafe reverse mortgage can be a way to age in place, but increase cash flow for rising needs such as health care costs, or even helping grandchildren pay for education expenses.
There are some limitations to the product, since it will available only in five states when it first rolls out. However, the company plans to make it available in more states following the initial launch.
Noting the rising cost of home care in California, one estate planner says a reverse mortgage can help even those with plenty of money saved for retirement.
“Even folks with multimillion-dollar portfolios are starting to see they have to have more cash flow in order to survive,” said estate planning attorney Ron Chin of Coronado, Calif.-based Rose, Munns & Chin on a recent reverse mortgage panel discussion.
Home equity can be the place to look, to avoid having to tap into other assets, he says.
“Even with several million dollars in home equity, [people are] looking for ways to balance budgets. They’re living longer, and they’re looking to expand cash flow without liquidating all of their assets.”
