Based on feedback from our readers, it seems few (potential) reverse mortgage borrowers are aware of the possibility of refinancing a reverse mortgage. The idea of refinancing is typically associated with conventional mortgages, and for good reason! Who would ever think to refinance a loan that they don’t have to repay directly? [Note: I’m not implying that a reverse mortgage doesn’t need to be repaid, but rather that it is often repaid by the borrower’s heirs, after the borrower passes away.]
In many situations, however, it can be extremely beneficial to refinance. The most obvious trigger would be a change in interest rates. Since the balance of a reverse mortgage continues to accumulate interest until it is repaid (as with a conventional mortgage), a lower interest rate would necessarily translate into less interest. For those with fixed rate reverse mortgages, this notion is pretty straightforward.
For those with adjustable-rate mortgages, the math is slightly more complex, and rests on certain assumptions about the direction of short-term variable rates. However, those that took out reverse mortgages many years ago probably were limited to variable-rate products, and might wish to refinance into a fixed-rate loan for peace of mind. As with a conventional mortgage, the savings from lower interest might be offset by fees associated with the refinancing. In the case of reverse mortgages, these can be significant. In other words, unless interest rates drop dramatically (by 2%+), a refinancing probably won’t be economical.
There is another goal of refinancing which is unique to reverse mortgages- increased cash payout. Don’t forget that the initial loan amount was determined largely by factors outside of one’s control: borrower’s age, home value, loan limits, interest rates, etc. In the years since you took a reverse mortgage, you have certainly aged, your house may have appreciated, federally-mandated loan limits may have risen, and/or interest rates may have fallen. All of these trends would entitle you to more cash. This is particularly relevant in the current environment, where home prices are depressed and FHA loan limits are becoming stricter. Refinance five years from now, and there is a good chance that these drawbacks have been alleviated. Not to mention that you are now five years older, which means the lender is actuarially five years closer to being repaid.
The analogy would be to a cash-out refinancing on a conventional mortgage. Again, you must make sure that the increased cash payout more than offsets the fees. One rule of thumb is that the additional cash should exceed fees by two to four times. Consider also that an increased loan size would accrue more interest and possibly erode the value of your remaining equity at an even faster pace.
The latter is an important consideration and could leave your heirs with little if any proceeds after selling your home. It would be even more dire if you were forced to move out, as you could potentially be left with little money to put towards a new home. Thus, even though counseling isn’t usually required with a refinancing, it would probably be beneficial to meet with a professional and be reminded one more time about the potential downsides.
17 Responses to “Refinancing a Reverse Mortgage”
Have Feedback on This Article?
July 1st, 2012 at 9:53 am
need to show 1] examples & 2] the procedure of working with the mtge holder.
1] e.g. a 2 yr old fixed rev. mtge @ 5% interest – @ today’s rates how much,if at all, can it be reduced and what would be refin. charges if any?
2] how to procede with lender?
April 2nd, 2013 at 1:09 pm
when I took out my reverse mortgage my wife was not old enough tobe on the loan so the finance company said to make a quick deed so now they are saying it isn’t any good and they said we don’t qualify to put her on the loan and she has no place to go if I should pass away. They saID THEY CAnnot refinance our loan. Is there anything we can do?
April 17th, 2013 at 11:36 am
I have a reverse mortgage my wife is not on the loan they made a quick deed for her and now they say that isn’ any good I have tried to refinance but they say I can’t because of principle limit where can I get help
August 9th, 2013 at 8:31 pm
I’m In the process of refinancing my reverse mortgage due to a in appraised value allowing a significant cash draw. I was told it was required by the “FED” that I take the counseling again for $125. Is this true?
December 11th, 2013 at 4:38 pm
This article totally ignores the fact that many people had reverse mortgage when they were 62 years old but their younger spouses were not included. Now, when the spouse also reached 62, there is a problem. The respective company refuses/avoids to add the spouse, and a reverse mortgage refinance is necessary. No owner in this situation wants to borrow more money, but refinancing a reverse mortgage means adding closing cost to the loan and more importantly the interest will increase, a scenario many people cannot afford, it is a disaster, and people will remain without a home after the spouse on the loan will be deceased.
June 8th, 2014 at 11:59 am
I enjoyed reading your informative article. What kind of professional would you suggest to consult for all possible downsides of refinancing my reverse mortgage.
Thanks,
Helen-Merle
August 5th, 2014 at 1:06 pm
Two years ago we changed our home loan to a reverse mortgage and now we’re wondering if it would be economically beneficial to refinance it or is it even possible to do this. We need advice on our concern.
July 12th, 2015 at 11:24 am
I’m interested in refinancing my reverse mortgage that is approximately 4 years old. I’m 74 years old and believe my property has appreciated by $20,000 to $25,000.
November 7th, 2015 at 2:59 pm
Wells Fargo undervalued our home by 1,000 sq feet supposedly because the 2nd level was below ground. Only one side of the lower level is below ground..the other 3 sides are open with windows and doors. They had us over a barrel. We should have gotten a lot more equity. Would refinancing now help us?
January 11th, 2016 at 8:35 pm
Where I find the current reverse mortgage interest rate so I can compare with my rate?
May 20th, 2016 at 2:41 pm
Where I could compare my reverse mortgage interest . Thanks. Hale t concon
May 20th, 2016 at 2:46 pm
Can I use my siblings and relatives to be my co-signers if I refinance my reverse mortgage to a conventional loan mortgage.
July 12th, 2016 at 9:25 am
I’d like to know if there are any lenders that will do a refinance of a reverse mortgage. Who are they, what is the interest rate, etc? What are my options if home values are up. Would like to pay off cc debt & have 1 lumpsum payments.
December 29th, 2016 at 12:00 pm
Re-finance of reverse mortgage to change variable interest rate to a fixed interest rate.
tks
debE
November 15th, 2017 at 7:54 pm
RMS is my Reverse Mortgage Co. My RM is approx. 6 yrs. old. I had heard that you could get more money now out of my mtge. My mtge. Company said that is not so after you have had it for over 3 yrs. I am plagued with letters from other companies asking me to reapply for additional funds. Where do I stand and is it possible to get additional funds out of my current loan? My home is in excellent condition due to the improvements I have made. Can you help me?
April 10th, 2018 at 4:26 pm
I am getting calls and mail from companies about refinancing my reverse mortgage in 2010. I have no line of credit and my original loan was taken out in 2010 at 10.25 percent interest . The property has gone up a lot, but I would need to a new roof and driveway. is this a scam I am 85 years old
April 10th, 2018 at 4:58 pm
I am getting mail and calls about refinancing my reverse mortgage . Loan originated Bank of America in 2011. appraisal was 350,000. I do not have a line of credit. Prices are in 500,000 and up/. I do not line of credit It needs new driveway and roof and price I owe is around 360,00. I an also 85 years young. should I jut hang up or listen to the pitch if they are interested.