Are you a senior homeowner who has gotten a reverse mortgage in the past? You may be able to take advantage of current low-interest rates and increase your monthly cash flow by refinancing your reverse mortgage. In addition, refinancing can also provide security for your spouse or loved ones if something happens to you. If it’s been a while since you’ve taken a look at your reverse mortgage, it’s definitely worth considering refinancing. In this article, I’ll go through the basics of refinancing a reverse mortgage and help you determine whether it’s right for you.
It is a good idea to refinance your reverse mortgage if you can meet the eligibility requirements for the new loan. Your monthly cash flow could increase, and refinancing can provide security for your spouse or loved ones if something happens to you.
- When you refinance a reverse mortgage, you are essentially taking out a new loan to pay off the old one. This can be a good option if you’re looking to get a lower interest rate or want to take advantage of the higher loan limits available with a HECM.
- Refinancing a reverse mortgage is a smart move if you can get a lower interest rate. You may also want to consider refinancing if your home has appreciated in value and you want to take advantage of the higher loan limits.
- Refinancing a reverse mortgage is very similar to refinancing a conventional mortgage. But reverse mortgages do require a lot of paperwork and follow strict guidelines.
Top Reasons to Consider Refinancing your Reverse Mortgage
If you qualify, refinancing your reverse mortgage can offer a number of benefits. Below, I list some of the top reasons to consider refinancing your reverse mortgage:
To get a lower interest rate
One of the biggest benefits of refinancing is that you may be able to get a lower interest rate than what you’re currently paying on your reverse mortgage. This could save you money each month and over the life of the loan. With a lower rate, your monthly payment will be smaller providing you with additional cash flow for living expenses.
Increase in lending limits or home values
Homeowners who have homes that are valued higher than the current HUD limit will usually benefit from refinancing at the new higher limit. But, this may not be true if the homeowner’s loan was closed prior to 2008. Before 2008, the HUD limit was different in each county. The highest limit was $362K. In 2008, the national limit was set at $417K. In 2009, the national limit was increased to $625K. In 2015, the limit went up again to $700K.
HUD reverse mortgage borrowers with lower-valued homes who closed their loan before 2022’s current limit of $970,800 have less chance to get more cash benefits.
You can get a larger amount of money than before. Home Equity Conversion Mortgage (HECM) loans are tied to Federal Housing Administration (FHA) loan limits, which change annually. If you’ve had a reverse mortgage in the past, you might be eligible for a larger amount now. In 2022, the opens in a new windowreverse mortgage loan limit or maximum claim amount (MCA) for a reverse mortgage is $970,800. This is a huge increase from the previous years.
You want Spouse Protection to the loan
If you did not include your spouse on the original reverse mortgage loan, you’ll need to get a new reverse mortgage in order to add him or her to the loan. In certain situations, the homeowner may not be married during the existing reverse mortgage loan application.
If not listed on your reverse mortgage loan documents, you may be required to pay the entire loan in full, which means selling your home. If both spouses are listed, the surviving one can continue living in the house. If one spouse has to move into a nursing home, the other can stay at home and receive loan disbursals so long as they fulfill the ongoing obligations of the home equity conversion mortgage, which includes home maintenance costs and the payments of property taxes and homeowners’ insurance.
What to improve their cashflow
Reverse mortgages are great for seniors who need extra money but don’t want to sell their homes or move into an assisted living facility. Their equity will grow over time, and the interest rates are low. Seniors can use the money for any purpose they want, such as home repairs, medical bills, or everyday expenses.
Do the numbers make sense to refinance?
Generally, refinancing a reverse mortgage is a smart move if you can get a lower interest rate. You may also want to consider refinancing if your home has appreciated in value and you want to take advantage of the higher loan limits.
It’s important to do a bit of math to make sure that refinancing makes sense for you. The main factors you’ll want to look at are the refinancing fees, the interest rate, and your current loan balance. A reverse mortgage refinances guideline can be found on the website of the opens in a new windowNational Reverse Mortgage Lenders Association.
What are the HECM to HECM refinance guidelines?
The 5/5 rule can help homeowners decide whether refinancing their reverse mortgage is right for them. The guideline requires that the principle of a reverse mortgage loan be at least five times the closing costs, and that the cash from the transaction should be at least 5% of the amount being refinanced (including any other costs or charges connected with it). The 5-5 Rule also states that homeowners must wait 18 months after getting their original reverse mortgage before refinancing.
The requirement for refinancing a HECM reverse mortgage are as follows:
- You must be at least 62 years of age
- Your home must be your primary residence
- You have sufficient equity in your home
- Demonstrate your financial stability to fulfill the loan’s ongoing obligations, such as home maintenance expenditures, property taxes, homeowners insurance, and homeowners association fees, if applicable.
Refinancing a reverse mortgage is very similar to refinancing a conventional mortgage. Reverse mortgages require a lot of paperwork and follow strict guidelines. Flood insurance is required if the house is located in a flood zone. It’s a good idea to meet with a professional that specializes in reverse mortgages. Jeannette is offering a free consultation to help you find out if a refinance is right for you. opens in a new windowSchedule your consultation with her today.
Reverse Mortgage Lenders
Most reverse mortgage lenders can offer refinancing services, but it’s important to compare interest rates and fees. Before deciding on a particular lender, make sure they do a good job explaining to you how reverse mortgage refinance works. You don’t want to get stuck in a bad situation where you can’t afford the new monthly payments. Your new reverse mortgage should improve your cash flow, not make it harder for you to live comfortably.
Can you refinance a reverse mortgage? Yes, you can refinance a reverse mortgage into a conventional loan or another
Refinance HECM Reverse Mortgage
When you refinance a reverse mortgage, you are essentially taking out a new loan to pay off the old one. This can be a good option if you’re looking to get a lower interest rate or want to take advantage of the higher loan limits available with a HECM.
The great thing about the HECM reverse mortgages is that they are government-insured loans, this gives you some peace of mind that the government has your back if something goes wrong.
Reverse Mortgages Refinance FAQs
What are the alternatives to refinancing a reverse mortgage?
You could take out a home equity loan or line of credit. This will allow you to borrow money against the equity in your home but keep your low mortgage rate. You might also want to consider a cash-out refinance. This is a good option if you want to consolidate your debts or make some big improvements to your house.
Finally, you could sell your home and use the proceeds to pay off your reverse mortgage. This might be a good option if you don’t think you’ll live in your home for much longer.
Can you take out a second reverse mortgage?
Reverse mortgages are loans that allow seniors to borrow money from their homes. These loans are called “reverse” because when the senior dies, the house goes back to the lender. This type of loan is called an “equity-based loan,” meaning that the borrower uses the equity in his or her home as collateral for the loan. When the borrower dies, the house returns to the lender. A reverse mortgage allows borrowers to tap into the equity in their homes without selling them. However, these loans are usually repaid by the borrower using the proceeds of a sale of the property.
Can I refinance a reverse mortgage loan to a traditional loan?
The answer is yes; it is possible to convert a reverse mortgage into a conventional loan or some other type of mortgage. To be eligible for the new loan, you will need to meet certain eligibility requirements, which will vary depending on the amount of equity you have in your home, your ability to handle the payments on your mortgage, your credit score, and additional factors.
Can you refinance Non-HECM Loans?
Refinancing a reverse mortgage depends on the lender. As a rule, lenders usually require borrowers to be financially sound, having enough equity in their properties to support a reverse mortgage. Refinancing non-HECMs (Home Equity Conversion Mortgages) are rare, as most private lenders find them to not be profitable. Consult with a specialist to see if possible to do a refinance in your situation.
The Bottom Line
The best way to think about refinancing your reverse mortgage is to look at it like any other home loan. It’s not just about paying off the original loan; it’s about making sure you pay less interest overall. If your home has appreciated in value substantially since your original reverse mortgage loan, now might be a great time to refinance and take advantage of that equity. Refinancing a reverse mortgage can be a great way to get extra cash without having to sell your house.
However, there are many things you need to consider before proceeding. Things like closing costs should be factored in, and you should make sure that refinancing is the best option for you. Contact me today for a free consultation about refinancing your reverse mortgage today.