What Is a Reverse Mortgage Refinance?
While anyone with a reverse mortgage can technically refinance it, there are situations in which doing so are to your advantage, and then there are situations where you might want to avoid it.
When to Go for Reverse Mortgage Refinancing
As mentioned previously, if you’re going to refinance your reverse mortgage, you should see a five-fold increase in the loan amount as compared to the amount that you will pay in fees. You also need to make sure that the amount made available to you is at least 5% of the amount being refinanced.
Another qualifier here is how long you plan to stay in the home. If you’re going to sell it and pay off the reverse mortgage shortly, then there is little point in refinancing. However, if you intend to remain there for a long time, it can be beneficial.
If you have decided that you want to add a spouse to your reverse mortgage, and it has been an appropriate amount of time since the original loan was originated or the last refinance, then it can make sense to refinance your reverse mortgage.
Finally, you should make sure that the value of your home has increased. Most often, reverse mortgage refinancing is done after the completion of repairs and upgrades that bring additional value to the home, or when the market has appreciated significantly. If your home’s value has not changed, or it has gone down, refinancing will not be to your benefit.
When to Avoid Reverse Mortgage Refinancing
If you’re thinking about refinancing your reverse mortgage, take a look at how long it has been since your last reverse mortgage. Has it been less than 18 months? If so, you are not eligible under NRMLA guidelines. You must wait at least 18 months between financing periods.
Another consideration here is if you have less to gain than what you’ll spend on the refinance. Again, make sure that you’re getting at least five times more in the loan than what the loan will cost you. Otherwise, the numbers just don’t add up and you will not benefit.
You may also decide that refinancing your reverse mortgage makes sense if you can get a lower interest rate. Remember that your heirs may have to deal with both the loan principal and the accrued interest down the road, so it makes sense to give them the best situation possible.
Finally, if you want to get out from the adjustable rate reverse mortgage you took while rates were very low and into a fixed rate loan, refinancing is a good choice. This can allow you to avoid increasing rates, but it can also be used to obtain a lump sum payment that you can use for larger expenses.
As a note, refinancing a reverse mortgage comes with very stringent requirements put in place as safeguards against predators who attempt to prey on elderly homeowners.
What Are the Requirements to Refinance a Reverse Mortgage?
In many respects, the requirements to refinance a reverse mortgage are similar to those to apply for one in the first place. However, there are differences, and refinancing actually has stricter requirements.
All borrowers must be at least 62 years of age, but non-borrowing spouses can be of any age.
You must submit to a credit check to verify creditworthiness.
You must submit to a review of your household payment history (utility bills, etc.).
You must submit to an assessment of all your financial assets and sources of income.
You must submit to an evaluation of your household cash flow.
You must use the home being refinanced as your primary residence.
The home must be owned by you (the borrower) and should be reasonably well maintained.
The home must be a property type supported by FHA/HUD, including:
A single-family home
A 1-4 multi-unit property of which you occupy at least one unit
A HUD-approved condo
A HUD-approved manufactured home
You must prove that you have the financial resources to deal with ongoing expenses, such as maintenance, insurance, property tax, and the like.
You must pass a CAIVRS check to screen for delinquencies.
You cannot owe any federal debt.
You must complete an extended counseling session with a HUD-approved counselor (session must have been completed within the previous five years). Note that you can locate a qualifying counselor with HUD’s search tool here.
The money you receive must equal at least 5% or more of the new loan’s principal.
The money you receive must equal at least five times the amount paid in fees for refinancing. That amount includes all closing costs, even if they are rolled into the loan.
The refinance must take place at least 18 months after any other reverse mortgage was approved (including a previous refinancing).
Ultimately, not only is refinancing a reverse mortgage possible, but it may allow you to benefit from lower interest rates or additional value in the home built through renovations and repairs. Qualifying for an initial reverse mortgage generally means that you’ll qualify for a refinance, but you do need to comply with the specific rules that apply to refinancing situations listed above (the final three).