Reverse mortgage borrowers might be surprised to learn that a reverse mortgage can be refinanced. Due to its unique structure, however, the calculus and considerations involved are different from those associated with refinancing a conventional mortgage.
The primary goal of refinancing a reverse mortgage is usually not to save money on interest. While interest rates may have fallen since you initially obtained the reverse mortgage, the decline probably won’t be enough to offset paying $10,000 in refinancing fees. In addition, since reverse mortgages don’t usually have limited terms (they are due when the borrowers moves or passes away), this is also not a consideration in refinancing, unlike with a conventional mortgage. However, you might refinance to switch from a fixed-rate product to a variable-rate loan.
Most reverse mortgages are refinanced in order to obtain more funds, and increase the size of the loan. For example, simply by virtue of having aged, you are automatically entitled to withdraw a greater chunk of home equity. In addition, there is also the possibility (though perhaps not under current circumstances) that your home has appreciated in value and/or the FHA has revised its loan maximums for your region, both of which would entitle you to more cash.
Most experts advise that the refinancing should produce additional funds totalling 2-4 times the fees, in order to be worthwhile. For example, if you are eligible to obtain an additional $45,000, and origination fees total $10,000, a refinancing could be justifiable. On the other hand, if your home has only appreciated slightly in the interim, a refinancing probably wouldn’t be economical. In addition, if your goal is merely to alter the method by which funds are distributed (from line of credit to monthly payment, for example), you can do so without refinancing. Instead, your lender might charge you a modest fee for the change.
With a refinancing, you don’t need to pay another up-front FHA insurance premium. You will only be assessed the premium on the increase in the balance of the loan. Another FHA rule is that you won’t be required to undergo a fresh counseling session if you the new funds you receive exceed five times the value of any new origination fees.
Ultimately, the most important consideration in refinancing (as with initially obtaining a reverse mortgage) is your motivation. Do you really need the additional funds, or are you merely trying to cash out some additional home equity so that you can maintain your standard of living? This is a serious question, and one you should not take lightly, regardless of how you are advised by your lender.

One Response to “Refinancing a Reverse Mortgage”

  1. Paul Bruinds Says:

    Dear madam/sir

    I have a fixed rate HECM, on which we have been repaying substantial . principle. Can I refinance at variable rate at full eligible value. Purpose to help purchase a principle residence for our Daughter. Our plan is to pay back all principle and interest on the refinanced loan within 5 years. Thank You for your time. Paul Bruins

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