Tips to Refinance a Reverse Mortgage

Refinancing a reverse mortgage simply means exchanging your existing reverse mortgage loan for a new one that takes your current situation into account. In other words, you are making a better financial choice considering your present state of affairs.

Why You Should Consider Refinancing a Reverse Mortgage

Here’s the thing. It is difficult to accurately predict the future. Your existing reverse mortgage may have met your needs when you took out the loan, but certain factors may have changed since then.

For example, there may be a new maximum amount that you can access (principal limit), your living situation may have changed, or your retirement goals may no longer be the same as before. Any of these can make it necessary to refinance your existing reverse mortgage

Besides, you can enjoy the following benefits if you refinance your reverse mortgage:
  • You can get a lower loan margin or lower interest rate
  • Refinancing your reverse mortgage allows you to access more cash from your home equity, which you can use for your living expenses
  • It enables you to protect your spouse by including them as co-borrowers, eliminating the need for them to sell off the property in case you pass on
  • You can leverage the home equity conversion mortgage lending limit if the current maximum amount is higher than your existing reverse mortgage loan

Requirements for Refinancing a Reverse Mortgage

If you already took out a reverse mortgage loan, then you shouldn’t have any problems qualifying for refinancing the loan. That’s because the requirements for refinancing a reverse mortgage are usually the same or similar to the original criteria.

Here are the criteria for every HECM borrower looking to refinance their loans:
  • You must be 62 or older
  • You have paid off a significant amount of the initial mortgage or own the home outright
  • The home must be your primary residence
  • You must be able to keep up with the financial obligations associated with the home, such as homeowners insurance, property tax, and home maintenance
  • You can’t be failing on any federal debt or tax lien

How Long Before You Can Refinance a Reverse Mortgage?

While the criteria for refinancing a reverse mortgage are the same as the requirements that qualify you for the initial loan, the timing for accessing the loan is completely different. You will have to wait for at least 18 months from when your existing reverse mortgaged closed.

Making it Worthwhile

Refinancing a reverse mortgage makes more sense in certain situations. First, you should determine if the process is in your best interest. You can use what is known as the “5-5 Rule” to know if refinancing will be beneficial.
The 5-5 Rule, developed by the National Reverse Mortgage Lenders Association (NRMLA), states that to justify refinancing:
  • The total increase in the principal loan amount must be more than or equal to five times the closing costs of the loan
  • The proceeds from the loan must be more than or equal to 5% of the amount you plan to refinance

We understand that the entire refinancing process may seem more complicated than it really is, which is why our home equity specialists are always ready to provide further information or guidance to homeowners considering this option.

The home equity conversion mortgage (HECM) may be a widely popular option for many seniors but it might be more beneficial to access a different type of reverse mortgage if your home is worth more than the HECM lending limit. We can help you determine if a jumbo or proprietary reverse mortgage is better suited to your situation.

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