If you have a high-valued home in a competitive real estate market, you may assume that you are not the typical reverse mortgage borrower. In fact, the Federal Housing Administration sets a lending limit for the reverse mortgages it insures at $625,500. But there’s a specific type of reverse mortgage available that can help borrowers access their home equity beyond that limit: a “jumbo” reverse mortgage.
Even if you don’t feel you need a windfall right now, a jumbo reverse mortgage can be used as a strategic tool to boost your retirement and, in some cases, act as a safety net for the future.
Jumbo reverse mortgages are for people 62 or older who have a sufficient amount of equity in their home, but for which their home value exceeds the federal lending limit of $625,500. People who apply for jumbo reverse mortgages often use the loan as part of a comprehensive financial strategy to help them plan for retirement.
Because jumbo reverse mortgages aren’t usually used when homeowners are in dire straits, the homeowner may have more flexibility when it comes to strategizing on how the loan proceeds are used.
Here are three ways a jumbo reverse mortgage can help retirees.
To protect investments
One approach for those who are eligible for a jumbo reverse mortgage is to look at it as something you can tap into to avoid losing money if the market isn’t doing well.
According to *All Reverse Mortgage’s calculator with a property value of $2,000,000 a federally insured reverse mortgage reaches maximum available proceeds of $421,000 where a jumbo proprietary option produces an available loan of $880,000 over double the amount available under the federally insured home equity conversion mortgage program.
The downside is that the jumbo reverse mortgage only offers a single lump sum disbursement where the federally insured reverse mortgage provides more flexible payments such as an open line of credit.
*Commercial site. This was the only calculator available online which allowed for a comparison of both federally insured and jumbo programs without being required to input your personal and private information.
To manage healthcare costs
Health care costs continue to rise year over year, and even if you have a sufficient amount of cash in your various retirement accounts, one illness or accident could have the potential to derail your retirement altogether.
Most people don’t think about tapping into their home equity until it’s too late, but if you can tap into it earlier when you are healthy, you won’t be as stressed out if a financial burden relating to your health does come up. The proceeds from a reverse mortgage can be used for any purpose, and if you can make a backup plan and secure a jumbo reverse mortgage even if you don’t necessarily need it, you may be able to avoid some potential hardships.
To supplement Social Security
Another way to boost your funds in retirement is to defer drawing on your Social Security for as long as possible. This is because for each year after you are eligible to collect Social Security and don’t collect it, the amount you can receive increases by approximately 8%. Even if you hold out on collecting Social Security for a few years after you retire, you can drastically increase your payments.
This is where a jumbo reverse mortgage could come in. If you take out a jumbo reverse mortgage and use the funds when you need them, those funds from the loan may offset the payments you could be collecting from social security benefits and leave you with a higher amount in social security benefits down the road. Many retirees have successfully used a reverse mortgage to “bridge the gap” between their working years and claiming Social Security so that they can maximize their benefits.
If you would like more info on how to strategize for retirement using a jumbo reverse mortgage, contact a reverse mortgage professional or your trusted financial adviser who can help advise on your particular .situation