I’ve been thinking a lot about what it will mean for me to be a homeowner financially and physically as I get older. In a little over two decades, I will be a senior citizen. The average homeowner can pay anywhere between $1,500 to $3,000 a month in mortgage, insurance, and various home maintenance costs. Senior citizens need at least $44,000 a year to meet their standard of living costs. That cost will rise in the future.
That is just the tip of the iceberg when it comes to expenses. The human body slowly fails as we age. I have been researching how to ensure a steady stream of income once I become a senior citizen. One option I plan to keep on a contingency list for finance augmentation is a jumbo reverse mortgage.
Jumbo Reverse Mortgage Basics
Private lending institutions offer jumbo reverse mortgages, which are known as proprietary reverse mortgages. Neither the FHA or the federal government regulate or insure these types of mortgages. Depending on the lender, you must be between 60 to 62 years of age to apply.
The interest rates for a jumbo reverse mortgage loan can be significantly higher than for a traditional reverse mortgage, especially since private institutions, rather than federal regulation, determine the interest rates. Also, you might need two professional appraisals to determine the most accurate value of the home.
Home Equity and Reverse Mortgages
Home equity is the amount of financial value attributable to your home minus any outstanding mortgage balance. If your home has a value of $250,000 and you owe $150,000 on your mortgage, then you possess $100,000 is home equity. You can leverage this amount of equity against a loan via a reverse mortgage.
Most reverse mortgages are known as home equity conversion mortgages, which the Federal Housing Authority regulates and insures. They are personal loans for homeowners to leverage against the available home equity of their homes. To qualify, you must:
- be at least 62 years old
- own your home
- possess a low-value mortgage
You can use reverse mortgage payments to provide a self-paying supplemental income.
You also don’t need to repay reverse mortgages back anytime soon either. The reverse mortgage loan is repaid after the death of the homeowner, sale of the home, or when the homeowner moves out. It’s a loan based on available home equity. The maximum reverse mortgage loan amount is about $625,000. Even though it is called a reverse mortgage, the homeowner does not make mortgage payments.
Difference Between Reverse Mortgage and Jumbo Reverse Mortgage
The main difference between a reverse mortgage and a jumbo reverse mortgage is that a jumbo has no limit on loan amounts. These mortgages are primarily for homeowners of homes with a value of at least $600,000 to $1,500,000 at the minimum. If your home is worth $8 million, you can access millions of dollars in a jumbo reverse mortgage loan via home equity.
Consider a Jumbo Reverse Mortgage as a Last Resort
Make sure you consult a financial advisor before applying for a jumbo reverse mortgage. After all, at age 62, you are essentially giving up the last vestiges of your home’s equity for a loan or self-paying supplemental income. Keep this option on a list of last resorts or financial contingency plans.
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