A Proprietary Reverse Mortgage helps seniors with higher value homes get access to more of their home’s equity than the “traditional” reverse mortgage.
In this article we’ll dive deep into the Proprietary(also known as the JUMBO) reverse mortgage.
We’ll go over proprietary reverse mortgage pros and cons, and at the end, you’ll understand how a proprietary can work for you and if it makes sense for your situation.
PROPRIETARY REVERSE MORTGAGE BASICS
The proprietary reverse mortgage(or Jumbo) is a loan that helps seniors, 55 and older, get access to part of their home’s value WITHOUT requiring monthly mortgage payments. The percentage of the home’s value(or equity) that a senior can access is based upon their age. We’ll go over specific examples below; but at a 10,000 foot level, the older you are the more cash you can access.
Think of a Jumbo Reverse Mortgage(or any reverse to be honest) as just a loan against your home with a flexible repayment structure. You can either make payments or not, and any payments you DON’T make will just get added to the balance of the loan. We’ll get paid back when you either sell your home or both spouses pass away(if one spouse passes the other still owns the home and will be able to live there for life).
It is important to understand that YOU ARE NOT PENALIZED if you do not make mortgage payments. Ever. With that said, because you still own your home you are still responsible for paying your property taxes and homeowners insurance.
HOW PROPRIETARIES HELP YOU GET MORE EQUITY
To understand how a Proprietary Reverse Mortgage works, you need to contrast it with a “traditional” HECM(or reverse mortgage).
Traditional reverse mortgages give you a MAXIMUM home value of $970,800, no matter how much your home is truly worth. This means that your loan will be based off of an appraisal of $970,800, even if your home is worth more money!
A Proprietary Reverse Mortgage does not have any home value limits. This means that if you have a home worth $1,200,000, $1,800,000 or $4,200,000 your reverse mortgage will be a percentage of THAT VALUE, and you’ll get more money.
HOW ROY & CHERYL USED A JUMBO TO KEEP MONEY IN THEIR ASSETS
Let’s look at a wonderful couple we recently helped. Roy and Cheryl are 78 and live in a lovely home on the inner-coastal waterway in Boca Raton, FL. They have a $900,000 mortgage and their property taxes are just over $11,000 a year.
Because of this(and don’t forget flood insurance) their monthly payment was over $5,800. Due to their cashflow, Roy & Cheryl were forced to withdraw $4,500 a month from their assets to pay the mortgage and their other senior living expenses.
Now Roy wasn’t broke; he had over a million dollars in assets, but every time he drew on his account he took a tax hit. The market was hitting him hard too…that million used to me 1.6M. In other words, Roy was slowly bleeding and he didn’t like it.
Roy’s CPA recommended that he look into a Proprietary Reverse Mortgage, and here’s what we came up with.
Roy and Cheryl ended up qualifying for just under $1,138,000 of tax free cash. Of that amount, $900,000 went to pay off the mortgage. Then, they had the option of taking about $238,000 of extra cash to put back into the piggy bank, or just getting a lower loan size.
Roy’s CPA advised them to take all the money they could get out of the home and worked alongside his financial advisor to ensure that the money was safely working for them. That extra money was icing on the cake though.
In the end, being able to eliminate the mortgage payment, and the related draw on Roy’s assets was the biggest win. Now Cheryl and Roy are financially comfortable, and don’t have to worry about unnecessarily bleeding through drawdown and taxes.
A DEEP DIVE INTO THE PROPRIETARY REVERSE MORTGAGE PROGRAM
Here’s where we get “technical”. If you want to skip this section to just get individualized information; you can contact us toll free at (888) 309 9705 or email@example.com.
Still here? Ok, let’s break down the Proprietary Reverse Mortgage. There are a few main differences between the Jumbo Reverse Mortgage and a traditional reverse.
CASH IN POCKET
- As I stated above, traditional reverse mortgages have a home value cap of $970,800. If your home is worth more, a traditional reverse won’t give you any more money.
- A Jumbo Reverse Mortgage doesn’t limit the value of your home. You can have an 8 million dollar house and your loan size will be a percentage of that 8 million dollars(by the way, a 78 year old with an 8 million dollar home would be able to access roughly $3,189,000)
- A Proprietary Reverse Mortgage will give you all of your money “Up Front”. One downside to FHA reverse mortgages is oftentimes you can only access 60% of your money in the first year(with the additional 40% coming after 365 days).
FEES & RATES
- Let’s talk about fees. Traditional reverse mortgages have the following fees…
- Origination=Lesser amount of 2% of home value or $6,000
- FHA Mortgage Insurance=2% of home value up to $765,600
- Title fees, recording charges, stamp/intangible taxes
- A Jumbo Reverse Mortgage will always cut the MAJORITY of the fees out
- Origination=This varies from lender to lender but some have no origination charges
- FHA Mortgage Insurance=NO MORTGAGE INSURANCE CHARGE
- Title fees etc=There still will be recording, transfer and stamp/intangible taxes
- In many instances a Jumbo Reverse Mortgage will save senior homeowners $20,000+ on fees!
- The majority of Proprietary Reverse Mortgages have FIXED rates vs. traditional reverse mortgages which have VARIABLE rates. Rates are based on where the market is at the time of application and closing. Give us a ring at (888) 309 9705 or email firstname.lastname@example.org to get the exact current rate.
HOW FUNDS CAN BE ACCESSED
- Every Jumbo Reverse Mortgage allows you to take cash in one lump sum(as opposed to the 60% 40% split of the traditional reverse mortgage)
- Some states allow lines of credit…please inquire for the exact state list.
A Proprietary Reverse Mortgage allows you more funds to treat the kids(and grandkids)!
EXAMPLES OF HOW SENIORS USE PROPRIETARY REVERSE MORTGAGES
We’ve already spoken about how Roy and Cheryl used a Proprietary Reverse Mortgage to eliminate their mortgage payment and secure their retirement. But there are many other reasons why seniors use this program.
PURCHASE A HOME
In another article I described how Phyllis relocated from New York to Boca Raton, FL to be closer to her grandkids(and have 70 degree winters too). Phyllis had 3 choices; buy using 100% cash, get a mortgage, or use a Jumbo Reverse Mortgage.
Phyllis had just over $3,000,000 in assets, so she was uncomfortable paying the entire purchase price of $2,500,000 in cash. It would’ve left her with little wiggle room.
At the same time, getting a “regular” mortgage would’ve left her with a significant cashflow shortfall.
In the end, Phyllis chose a Jumbo Reverse Mortgage. She invested just $1,604,000 for her $2,500,000 home. She has no mortgage payments because it’s technically a reverse mortgage, and she kept over a million dollars in her savings!
PAY FOR HOME HEALTH CARE OR A HOME MODIFICATION
Health emergencies are the biggest reason that today’s seniors file bankruptcy, and thus we do more Proprietary Reverse Mortgages for healthcare related reasons than anything else.
To stay in their home, many seniors need home health care; but it isn’t cheap. In fact, CNAs(or Certified Nursing Assistants) cost between $23 and $27 an hour, depending on the agency. If your loved one needs 24/7 care, the cost can easily hit over $10,000 a month!
Enter the Proprietary Reverse Mortgage. Depending on age, a senior can get between 40-75% of their home value and they can use it on their home health care. Even better is the Jumbo allows seniors to get all of their money up front(as opposed to the traditional reverse)!
This is one program that I’ve used to keep seniors out of the nursing home and in their home where they belong(and want to be).
FUND A BUSINESS OR INVESTMENTS
Before I get into this; I’m not a huge fan of using reverse mortgage money for speculation. This money is coming out of your home, so you need to be careful with where you put it.
With that said, I help quite a few senior business owners use their home equity to capitalize their business. This works well because you don’t have high interest rates OR the pay back obligations(daily or monthly drains) that are detrimental to cashflow. In addition, a Proprietary Reverse Mortgage is relatively easy to get; you don’t need to show mountains of business tax returns, account statements etc.
Here are some businesses I’ve personally funded with using a reverse…
- Construction Company-Used a Proprietary Reverse Mortgage to buy equipment. Cashflow is HUGE with construction(as you know). They leveraged the new equipment to win a new bid and scale their business up!
- Real Estate Investor-Whether you’re buying to hold/rent or flipping, a Proprietary Reverse Mortgage is a perfect way to get funds. Think about being able to borrow the money without mandatory interest payments or a balloon! We’ve done this over 50 times for investors.
- Life Insurance-The government does not recommend using a reverse mortgage to purchase financial vehicles, but I’ve seen it work when you have a very capable financial advisor overseeing everything.
- Boutique Law Firms-Need funds to go to trial? The Proprietary Reverse Mortgage will get you there quickly, again without relying on a business plan, proof of business financials, account statements, etc.
In summary, if you have a business that needs money(but you don’t want cashflow implications) a Proprietary Reverse Mortgage will work extremely well!
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WHEN TO GET A HECM REVERSE MORTGAGE OVER A JUMBO
Having helped over 400 seniors, I recognize that every senior(and situation) is different. Just like most financial products, reverse mortgages are NOT cookie cutter. In fact, if you’re working with a reverse mortgage originator who doesn’t seem to be listening to your needs, you should find a new one…IMMEDIATELY.
With that said, here are a couple “types” of folks who might want to look at a traditional HECM over a Jumbo Reverse Mortgage.
- If you need to put money in a line of credit and live in a state other than AZ, CA, CO, CT, FL, HI, ID, IL, MI, NV, NJ, NC*, OH, OR, SC, TX, UT, VA, DC. Proprietary Reverse lines of credit are expanding as the months go by, but might not be in your state there yet.
- Lines of Credit are great to create your own long-term care insurance policy, but they can also be accomplished by Lump Sums(again you’d need an excellent financial advisor).
- If you need “annuity style” payments, which basically equate to monthly income for life. Currently, there are very few Proprietary Reverse Mortgage options that offer annuity style payments; but that should change in the months and years to come.
- Speaking from experience; the vast majority of seniors do not want to be “stuck” in monthly income programs. Their needs evolve, and over 90% are more comfortable with some combination of lump sum and a line of credit.
WHAT IS THE PROPRIETARY REVERSE MORTGAGE PROCESS?
Normally, closing a Proprietary Reverse Mortgage takes about 30-45 days depending on complexity. Here’s what to expect with the process.
- Have your first conversation with a Jumbo Reverse Mortgage Originator. Make sure that you work with someone who has experience with Jumbos, as some technicalities differ from traditional HECM reverses.
- I’ll share what options are available IN YOUR STATE.
- In our first conversation, we’ll dive deep into your financial picture; so be prepared to discuss your goals, needs and challenges at a high level.
- With the information that you’ve provided, I’ll be able to show you if you qualify, your options, and approximately how much money you can access from your home.
- If you choose to move forward, we’ll complete an application together. By the way, even though you’re signing an application, you aren’t locked into the process until 3 days after you sign FINAL CLOSING documents.
- You will speak with a Proprietary Reverse Mortgage counselor. He or she will have a streamlined conversation with you that’s very similar to our first conversation. The cost of counseling is between $125 and $175.
- Next, you’ll have an appraisal done on your home. This is one of the most important steps, as the appraisal will tell us your home value(and thus how much money you can get out of your home). Generally, the appraiser compares your home to 3 similar homes that have sold in your area over the past 12 months. Obviously, your home’s unique characteristics like pool, square footage, updated kitchen, lot size, etc will impact your home’s value. Most appraisals cost between $500 and $750 depending on home size and complexity.
- FYI…if your home is valued at $2,000,000 or higher, the lender will require a second appraisal. They will use the lower value of the 2.
- Once we have the appraisal in, I’ll personally reach out and give you the information. Then, we’ll process and underwrite. The average Jumbo Reverse Mortgage spends 2-3 weeks in underwriting.
- Finally, on closing day we’ll settle at your home or a location that’s comfortable for you. I always share final numbers as soon as I have them, and no closing ever has any surprises.
- If you’re buying a home, you’ll fund right away. If you’re refinancing your home, there will be a 3 business day waiting period prior to funding.
WHAT SHOULD I DO NEXT TO GET MORE INFORMATION?
In this article, I attempted to be as thorough as possible, while at the same time I don’t know your exact situation(wouldn’t it be strange if I did). If you’d like to get more information about how a Proprietary Reverse Mortgage can work specifically for you, or you have any questions you can reach us TOLL FREE at (888) 309 9705 or email@example.com.
I’ll personally do my best to answer your questions and help you understand if a Proprietary Reverse Mortgage is for you. Thanks for reading…
CALL US AT (888) 309 9705 OR