What is a jumbo reverse mortgage? Plus, the best lenders

If you're looking to take out a reverse mortgage but you're under age 62, or you need more funds than a home equity conversion mortgage (HECM) — the most popular type of reverse mortgage – can provide, you may want to consider a jumbo mortgage. 

These are proprietary reverse mortgages that, unlike HECMS, are not insured by the Federal Housing Administration. For that reason, these loans face fewer regulatory restrictions, allowing lenders to finance larger loan amounts and extend them to younger borrowers. Most jumbo reverse mortgages can be up to $4 million and homeowners as young as 55 can apply. 

But jumbo reverse mortgages can have downsides.

For one, they are riskier for borrowers than HECMs: You're not guaranteed to get the protections required with an HECM, such as protection from owing more than your home is worth. Plus, interest on jumbo reverse mortgages tends to be higher, so you'll likely owe more than what would be due on an HECM. Additionally, like with any reverse mortgage, your lender can force you into foreclosure if you fail to make payments.

Below, CNBC Select covers the protections HECMs borrowers are guaranteed that jumbo reverse loan borrowers are not, the best loan options to consider and steps to take before you apply for this type of loan.

Below are some protections guaranteed when you get a highly-regulated and government-insured HECM that you won't necessarily get from a jumbo reverse mortgage: 

• Protection from an upside-down mortgage: HECMs have "non-recourse" protections, meaning that the borrower will never owe more on their loan than the house is worth. While most jumbo reverse mortgages also have this type of protection in the contract, it's not mandated like it is for HECMs. 

• Protection for spouses: HECM regulations protect a non-borrowing spouse, if there is one, from losing their home or having to repay if their spouse dies or moves into a long-term care facility. Jumbo reverse mortgages are not required to provide this protection. 

• Strict financial assessment of borrower during application: A HECM appraisal of a prospective borrower's finances is typically more strict than what would be done on a jumbo reverse mortgage, meaning there is less of a chance the loan will come due in full as a result of non-payment on taxes or homeowners insurance. 

• Mandatory housing counseling: All HECM borrowers are required to speak with a Department of Housing and Urban Development-approved counselor. Some states require this for all reverse mortgages, but it's not federally mandated for jumbo reverse mortgages. No matter the loan type, reverse mortgage borrowers should always take this step before closing as it can help you avoid potentially risky options. 

If you decide a jumbo reverse mortgage is right for you, here are three lenders CNBC Select recommends. 

All three offer a standard proprietary jumbo reverse mortgage option for those ages 55 and older, up to $4 million. 

Longbridge Financial 

If you're looking for affordability, look at Longbridge Financial. It offers lower-than-average rates and no service fee — which is typically around $35 per month. Veterans can also earn $500 toward closing costs. 

Finance of America

If you want to trim down on closing costs, consider Finance of America. It does not charge origination fees on its jumbo loan product, called HomeSafe Standard. Plus, it offers a second proprietary reverse mortgage option, called HomeSafe Second, for loans up to $1 million — that way, you can keep your existing mortgage intact while getting the benefits of a reverse mortgage. 

Mutual of Omaha 

Finally, if you prefer to handle your lending in person, try Mutual of Omaha. Unlike many reverse mortgage lenders, which are online only, this lender has dozens of locations across the country. 

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed financial decisions. Every personal finance review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of home loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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