A reverse mortgage can be a great solution for seniors who want to stay in their homes and want to increase their monthly retirement income. If your interest rates go down or you need to make some major repairs on your home, you may want to refinance your reverse mortgage. Under certain circumstances, refinancing a reverse mortgage make sense. In this article, we’ll look at how reverse mortgages work and whether you should consider them.
What is a reverse mortgage?
A reverse mortgage is a type of loan for homeowners who are at least 62 years old. Many seniors will choose to use this option to help them supplement their income by borrowing against the equity in their homes. In addition, seniors who receive a reverse mortgage can use the money to fund home repairs, renovations, and other expenses. This is an attractive option for many seniors as they can stay in their homes while still having an additional source of income.
Is it possible to refinance a reverse mortgage?
Yes, refinancing a HECM Loan (Home Equity Conversion Mortgage) is similar to refinancing a traditional mortgage. You’re simply replacing the current loan with a new one, which may offer better terms and lower your monthly payments. For example, you might choose to refinance a reverse mortgage if interest rates have fallen since you first obtained the loan or if there is a time when you need more money than your current loan can provide.
Top 4 Reasons to consider refinancing my reverse mortgage
1. When the interests rate goes down
Before refinancing a reverse mortgage, you’ll need to compare the terms of your existing loan with new loan options. For example, if there is a decrease in interest rates since you first obtained your reverse mortgage, it might make sense to refinance. Similarly, if your monthly payments are too high or there’s not enough money to cover expenses then this can also be a reason to refinance. It is important to remember that refinancing a reverse mortgage requires the same paperwork and application process as obtaining a new loan, so you’ll want to make sure you have your finances in order before applying for a new loan.
2. Your Home Value Goes Up
If your home appreciates in value significantly, it might make sense to refinance a reverse mortgage. This allows you to cash in on the additional loan proceeds from your home without having to sell it. In addition, refinancing a reverse mortgage might allow you to get a new loan option with better terms and lower monthly payments. For example, you may be able to change from an adjustable-rate to a fixed rate or reduce the monthly payments on your new loan.
3. Protect Your Spouse
You may want to give your spouse the protection of a reverse mortgage if you die. This protects your spouse from being evicted from the home after death and provides them with an additional monthly income that can be used to pay off debts or finance living expenses. In this case, it makes sense to refinance your reverse mortgage so your spouse will be able to keep your existing loan.
4. Switch from variable interest to fixed interest rate
If the existing reverse mortgage was a variable interest rate reverse mortgage, refinancing with a fixed interest rate for the new reverse mortgage may make sense. This allows you to maintain lower monthly payments when the variable rates are lower, but when they rise you won’t be affected by the monthly increase in your loan balance. Refinancing a reverse mortgage with a fix rate will give your more control over your money.
How do I refinance a reverse mortgage?
The process of refinancing a reverse mortgage is very similar to refinancing any other type of loan. You’ll first need to contact your existing lender and request an application for the new loan. Then, complete the application process and proceed with whatever documentation you’ve been asked to provide. Your lender will perform a series of checks to ensure you can afford the new loan and that your home is still worth at least as much as the current loan. If all of this checks out, you’ll be able to proceed and receive a new reverse mortgage with better terms and conditions.
The best approach to go forward is to contact your reverse mortgage refinancing professional for assistance.
What are the things to be aware of when refinancing a reverse mortgage?
The fees involved can be substantial. So be sure to compare the fees as well as APRs between your options before you refinance a reverse mortgage. In addition, find out if your home equity must be equal to or more than the value of the new loan before refinancing. If not, you may have to pay closing costs which further reduce your existing equity in your home.
What about refinancing to a conventional mortgage?
You can refinance into a conventional loan, but you will then be subjected to the same kinds of interest rates and mortgage payments as others with a conventional loan. You’ll also lose some of the advantages of having a reverse mortgage, such as avoiding age-based lender requirements, receiving your money in monthly payments, and being able to pay off your loan balance at any time without penalty.
Refinancing a reverse mortgage FAQ
How long before you can refinance a reverse mortgage?
You need to meet a seasoning requirement of 18 months since the closed of your original loan before you can refinance your reverse mortgage. Also, the borrower must still fulfill the same requirements as he or she did when receiving the previous reverse mortgage loan.
Can I get cash out with refinancing?
There are other ways to get cash out of your home when refinancing a reverse mortgage. Many times, refinancing to an interest-only loan or reducing the monthly payment will provide you with additional income that can be used for anything from medical bills to vacations.
Can I refinance my parent’s reverse mortgage?
Generally, you need to be the original borrower on the reverse mortgage in order to refinance.
How many times can you refinance a reverse mortgage?
There is no limit on the number of times you can refinance a reverse mortgage.
What about closing costs?
The closing costs are the same as when you got your original loan. You will, however, need to pay origination fees and closing costs for refinancing.
How long does it take to refinance a reverse mortgage?
The length of time it takes to refinance a reverse mortgage varies but usually takes between four and eight weeks.
What about property taxes?
As with your original loan, you still need to pay your property taxes.
The Bottom Line
Refinancing a reverse mortgage allow you to get a new loan option with better terms and lower monthly payments. For example, you may be able to change from an adjustable-rate to a fixed rate or reduce the monthly payments on your new loan. In addition, find out if your home equity must be equal to or more than the value of the new loan before refinancing. If not, you may have to pay closing costs which further reduce your existing equity in your home.
Refinancing a reverse mortgage can be a great idea, however, it is important to compare all of your options before making any decisions. Furthermore, if you are considering refinancing to a conventional mortgage, remember that you will face standard interest rates and monthly payments instead of the advantages that come with having a reverse mortgage. If you have other questions about refinancing a reverse mortgage or want to refinance your own loan, contact your Reverse Mortgage Specialist.