The Evolution of Reverse Mortgages

A great deal has happened since the late 1960s when the first reverse mortgage was issued to a high school teacher by one of her former students. Back then, what began as privately issued reverse mortgage loans ultimately became insured by the Federal Housing Authority in the 1980s and gradually saw the birth of proprietary “JUMBO” reverse mortgages. 

So, what changed since then? Briefly, the needs and circumstances of certain homeowners created the demand for loan products that could help homeowners with high-valued homes. Also, the industry saw a demand for reverse mortgages for those who were not yet 62 years old but were over the age of 55. 

Let us review some of the basics: A reverse mortgage helps homeowners over the age of 62 convert a portion of their home equity into tax free cash and offers the additional benefit of being able to choose how to access those funds. For example, homeowners may choose a growing line of credit, have monthly payments made to them, withdraw a lump sum, or a combination of all three plans. All this without having to make a monthly mortgage payment and being able to continue to retain complete ownership of their own home. 

Homeowners have asked me in the past what is the main difference between the federally insured reverse mortgage loan known as the Home Equity Conversion Mortgage vs. the Reverse Mortgage proprietary loans? 

The short answer is that the HECM, while being insured by the federal government, has higher closing costs and a lending limit of $1,089,300, whereas the JUMBO Reverse Mortgages closing costs tend to be less while offering access to more home equity with a loan amount up to $4,000,000. Plus, they offer unique financial solutions not available with the FHA Reverse Mortgage.

Remember the interest rates of 2022? In a historic first, we saw loan rates as low as 2.3% and many people refinanced their home loans to take advantage of these once in a lifetime rates. Imagine that you are one of those individuals who had one of those loans and now have a need to tap into your home equity but want to keep your low interest rate on your first mortgage.

A relatively new proprietary JUMBO reverse mortgage available today may allow you to retain the low interest rate first loan you currently have and place a “reverse mortgage second” on your home that does not require monthly
payments!

A step further, what if there was another loan that would allow you to lower your monthly mortgage payments and after 10 years become a reverse mortgage? There is a program for that, too! 

Lastly, homeowners may use a HECM or JUMBO reverse mortgage to purchase a new home! Ideal program if you’re downsizing or would like to relocate.

California residents are one of the few groups in the country where home values can be higher than $1,500,000 in some markets, therefore making the JUMBO reverse mortgage a very attractive option to consider in your retirement years.