If you have had your reverse mortgage for at least 18 months, you may be eligible for a reverse mortgage refinance. Refinancing your reverse mortgage can have a lot of benefits, as a reverse mortgage refinance can be used to increase the amount of money that you have available or to lock in a lower rate. Since every financial situation is unique, it is not possible to make a blanket recommendation about refinancing a reverse mortgage, but we can provide you with some of the factors that could influence your decision.
Why is a reverse mortgage refinance a good idea?
Some financial reasons that could make a reverse mortgage refinance a good idea for you are:
- Interest rates are lower
- Property values have increased
- The principal limit factor has increased
There are other non-financial benefits to refinancing the reverse mortgage, too, like being able to name your spouse on the loan, and being able to change the type of reverse mortgage (this is true if you have a private reverse mortgage and would like to switch to the HECM program).
A reverse mortgage refinance has closing costs associated with it, but these costs can be paid out of the loan proceeds, which means that the refinance can come at no out of pocket cost to you.
If you are looking to refinance your reverse mortgage, there are some requirements that must be met:
- 18 month waiting period – You can only refinance your reverse mortgage once every 18 months.
- “Net tangible benefit” – This is a fancy way of saying that the reverse mortgage refinance must benefit you in some way
- 5:1 loan amount increase to closing costs ratio – This requires that the loan amount increase be at least 5 times the closing costs you pay. For example, if you pay $500 in closing costs, you would have to receive $2,500 or more in additional funds.
The reverse mortgage refinance option has become extremely popular. Throughout the United States, thousands of reverse mortgage holders choose to refinance their reverse mortgage every year.
Why might a reverse mortgage refinance not be for me?
If you are happy with the current state of your reverse mortgage and are not looking for any additional cash out, then it may not make sense to refinance your reverse mortgage. Or, if you are looking to preserve the equity in your home, this program may not be right for you.
Many reverse mortgage holders, however, understand that they may not have a lot of equity in their homes, and they are okay with that because they can continue to live in their homes. This is why the reverse mortgage refinance is such a popular option.
One final reason that a reverse mortgage refinance may not be for you is if there is not a large benefit to you. Even if the closing costs are low but the benefit is only a few hundred dollars, refinancing your reverse mortgage may simply not be worth the time that is required.