For seniors age 62 and older with considerable equity in their homes, a reverse mortgage can provide a supplemental income or access to cash in the case of a financial emergency such as a large medical bill. Many borrowers, however, don't realize that they have the option to refinance a reverse mortgage if the market conditions and their financial situation would benefit.
Here's what you need to know about refinancing a reverse mortgage:
Why should I refinance? There are many reasons to refinance, especially if you've held a reverse mortgage for ten years or more. If interest rates have dropped more than 2 percent since you closed on the loan, you could reduce monthly interest payments by refinancing your reverse mortgage from an adjustable-rate to a fixed-rate loan.
If the housing market has improved and the value of your home has increased significantly, refinancing your reverse mortgage would give you access to more equity.
Refinancing a reverse mortgage also will allow you to add a spouse's name to the loan, which will ensure that the loan will not become due should you pass.
How do I know if refinancing would benefit me? Reverse mortgage refinancing applications typically go through the federal government's Home Equity Conversion Mortgage program, which offers safe reverse mortgages for seniors. The Federal Housing Authority, which administrators the program, offers free or low-cost counseling services for seniors interested in reverse mortgage loans.
Seniors can find HECM counselors or HUD-approved counseling centers near them by calling (800) 569-4287 or searching online.
Is there a cost? Yes. You'll typically pay closing costs associated with a new loan, which include origination fees, service fees, and third-party costs. The only difference in costs may be only the mortgage insurance premium on the amount your home's value has increased.
How do I apply to refinance? The process begins with an application for a new reverse mortgage and could possibly require that you attend a session with a mortgage counselor approved by the Federal Housing Authority. After your application is submitted, a new appraisal will be conducted to determine your home's current value.
Your new loan will then be underwritten, and it will include the new terms of your loan. Once the loan closes, you will begin receiving additional funds in the disbursement method you have chosen.
Can my heirs refinance my reverse mortgage? No. The beneficiaries of the loan are the only ones who can refinance it. If the owners of the home move, die or sell the property, the loan becomes due. Heirs must either pay off the loan with outside funding at the time of the owner's death or sell the property to pay it off. Reverse mortgages are not assumable.
Refinancing a reverse mortgage can be a smart way for seniors to capitalize on growing equity in their homes and improving market conditions. Whether you are looking to increase your monthly payment from an existing reverse mortgage or increase the amount of money you have access to in case of an unexpected financial situation, refinancing a reverse mortgage could significantly improve your financial position.