Refinancing A Reverse Mortgage: What You Need To Know

Refinancing a reverse mortgage is another testament to the flexibility of reverse mortgage products.

If you decide that making changes to your existing reverse mortgage is the best option for you, there are some important details to consider.

Understanding the reverse mortgage refinance process is key to making sure that it meets your needs and goals.

This article will discuss the reverse mortgage refinance process and what you need to consider before refinancing your reverse mortgage.

Reasons for a reverse mortgage refinance

Reverse mortgage borrowers are able to refinance their reverse mortgage for a variety of reasons.

Your home’s value has increased

If your home’s value has increased since you took out a reverse mortgage loan, you can refinance and increase the amount of reverse mortgage proceeds available to you.

You want to change reverse mortgage lenders

If you are unhappy with your reverse mortgage lender or want a better rate on your reverse mortgage loan, you can refinance with a different reverse mortgage lender.

You want to change reverse mortgage terms

When you refinance a reverse mortgage, you can often change the terms of the reverse loan.

For example, you can switch from an adjustable-rate reverse mortgage loan to a fixed-rate reverse mortgage loan.

The loan limits in your area have increased

The loan limit for Federal Housing Administration’s (FHA) insured reverse mortgages depends on the location of the property and changes periodically.

If a homeowner initially took out their Home Equity Conversion Mortgage (HECM) while limits were lower, they may be able to qualify for a higher amount by refinancing their reverse mortgage.

You can get a lower interest rate

If you refinance a reverse mortgage, you can get a lower interest rate. Lower interest rates may mean lower reverse mortgage loan payments and more proceeds available to the borrower.

Your heirs want to keep the home

Your heirs can refinance a reverse mortgage into a traditional mortgage loan if they want to keep the home instead of selling it to pay off the reverse mortgage.

You want to change your payout option

Reverse mortgage refinance is a great option for borrowers who want to change their reverse loan payout options.

You can refinance your original reverse mortgage in order to switch from a lump sum payment to monthly payments or vice versa.

You want a different type of reverse mortgage

If your home increases in value and now your home is eligible to meet the limits for proprietary reverse mortgages, you can refinance your existing loan with a proprietary reverse mortgage loan.

You want to add or remove a spouse from the reverse mortgage loan

If only one spouse was added to the reverse mortgage because the other was too young to qualify, you might refinance the reverse loan to add them to the new loan when they become eligible.

You want to refinance into a traditional mortgage

If you refinance a reverse mortgage into a traditional mortgage loan, you may be eligible for lower interest rates and more favorable repayment terms.

This can help reduce the money needed to pay off the loan when it comes due.

How long before you can refinance a reverse mortgage?

You can refinance a reverse mortgage at any time.

However, it’s important to keep in mind that refinancing a reverse mortgage could be costly as there may be refinancing fees and closing costs associated with the refinance process.

It’s best to speak with your reverse mortgage lender or HUD-approved counselor for more information about refinance options and the refinance process.

How many times can you refinance a reverse mortgage?

There is no limit to the number of times you can refinance a reverse mortgage, but there is a limit to the timeframe between refinances.

HUD established rules to prevent homeowners from taking out too many reverse mortgages, a process called loan churning.

By limiting borrowers to refinance only once every 18 months, HUD reduces the fees collected by lenders and prevents homeowners from becoming victims of this unfair practice.

How to refinance reverse mortgages?

It’s important for reverse mortgage borrowers to understand the refinance process, which is similar to taking out an initial reverse mortgage loan.

Refinancing a reverse mortgage

Step 1. Find a Lender

Once you’ve determined your eligibility, it’s time to find a lender.

A dedicated reverse mortgage lender is a great option.

Do your due diligence and make sure they are legit and are a good fit for what you want to accomplish with your retirement.

Step 2. Check Your Eligibility

Before you can refinance a reverse mortgage, you’ll submit your application to verify you meet qualifications as both the borrower and property owner.

Depending on which type of reverse mortgage you’re hoping to get approved for, Federal Housing Administration (FHA) requirements will need to be met. A private lender, local government or nonprofit organization’s requirements may vary.

An independent counseling session is required for both the FHA HECM reverse mortgage and non-government options. The counseling is typically performed over the phone; however, some companies offer face to face sessions.

You may terminate the application at any time if you change your mind.

Step 3. Underwriting

Once the lender has received the home appraisal, title, and all of the required documents from you, the loan will be sent to an underwriter. Normally, it takes them 48 to 72 hours to make a decision. If they approve the loan and no other items are needed or outstanding, they will issue what’s called a clear to close (CTC). Once approved, your loan officer helps finalize the loan.

Step 4. Closing and Funding

Lastly, your loan officer will plan the loan settlement. The process usually takes about an hour and is often done in the lender’s office, at a title company, or even at home with an attorney or mobile notary present.

Borrowers who complete the settlement paperwork have a three-day right of rescission, during which they can change their mind and cancel the loan. If they do not exercise this right, the loan will be funded and proceeds released in accordance with its structure.

Refinancing into a traditional mortgage

Step 1. Find a lender

You’ll need to find a lender and apply for refinance loan. Find a lender that is credible and has competitive refinance rates.

Step 2. Check Your Eligibility

You’ll need to meet the lender’s income, employment history, and credit requirements.

You’ll need to apply and provide documentation of your assets, debts, income, and other financial information.

Step 3. Underwriting

Once the lender has received the home appraisal, title, and all of the required documents from you, the loan will be sent to an underwriter. You’ll receive a commitment letter with the loan terms and estimated refinance costs if approved.

Step 4. Closing and Funding

To finalize the loan, all documents are signed, and closing costs are paid.

For a cash-out refinance, funds will be released as agreed upon in the refinance loan.

Reverse mortgage refinancing eligibility

The steps for a reverse mortgage refinance are the same as those for getting a new reverse mortgage loan. If you want to get a HECM refinance, these are the requirements:

• Must be 55 or older.
• Have enough equity in your home.
• The home must be your primary residence.
• Up to date on any federal debt (e.g., taxes or student loans).
• Up to date on your initial mortgage insurance premium
• Able to pay property taxes, homeowners insurance, homeowners association fees, and home maintenance.
• Meet with a HUD-approved counselor.
• It’s been longer than 18 months since you last refinanced your reverse mortgage.

Furthermore, the property must be up to par with FHA requirements. This includes being insured and without any health or safety hazards.

What are the pros and cons of refinancing a reverse mortgage?

Reverse mortgage refinances can allow homeowners to refinance the loan on more favorable terms and reduce their overall debt load.

On the other hand, refinancing a reverse mortgage could be costly and not ideal if the refinance costs outweigh the benefits.

Pros of refinancing a reverse mortgage

The pros include the following:

• Using the loan proceeds without restriction
• Lower monthly payments
• Reduce the amount of money needed to pay off the loan balance when it comes due
• More favorable terms and conditions
• Access to additional loan proceeds
• Change the loan’s payout structure

Cons of refinancing a reverse mortgage

The cons can include the following:

• Fees and closing costs associated with the refinancing process
• Extending the term of the loan, which may increase interest charges over time
• Risk of loan churning or taking out too many refinances
• Possibility of refinancing into a loan with an adjustable interest rate, which could increase the risk of unaffordable payments.

Is reverse mortgage refinancing right for you?

The reverse mortgage refinancing decision depends on your particular financial situation and goals.

Consider all your options before moving forward since you’ll have to wait 18 months once you have refinanced your reverse mortgage.