Refinancing an existing reverse mortgage with a new and potentially better one may be an option that works for some older homeowners, but this is generally not a good option for everyone. Can reverse mortgages be refinanced?
How does an inverted mortgage work?
Qualified homeowners may not be able to borrow the full value of their home – even if it is repaid. The amount you can borrow (also called the main limit) differs depending on the age of the youngest borrower or eligible non-borrower spouse, applicable interest rates, HECM FHA mortgage limit (USD 726.525 for February 2020) and home value.
In general, the older you are, the lower your interest rates and the more your property is worth, the more likely you are to have a higher capital limit. This amount may increase each month because borrowers with a variable interest rate HECM may receive additional funds.
If you choose a fixed interest rate HECM, you will receive a one-off lump sum payment. On the other hand, if you choose a reverse rate mortgage with a variable interest rate, you can accept:
- Equal monthly payments, provided that at least one borrower lives in the property as a main residence
- Equal monthly payments for a fixed period of months agreed in advance
- A credit line that you can access until it is depleted
- A combination of a credit line and fixed monthly payments as long as you live in the house
- Combining a credit line with fixed monthly payments for a specific period of time
Can you refinance an inverted mortgage?
If you currently have a reverse mortgage, also called an equity conversion mortgage (HECM), you may be wondering if you can still refinance the loan. The answer is yes, refinancing a reverse mortgage, also known by many lenders as HECM-to HECM Refinance, is simply replacing an existing reverse mortgage with a new one.
- Benefits of HECM refinancing
- Real estate values have increased
- Rates are lower than the current mortgage
- Willingness to change loan type (permanent or regulated) or withdrawal options
- Increase of credit limits
- You can add your spouse’s name to the loan
When to consider refinancing your reverse mortgage
Your home value has increased significantly.
You originally obtained a loan when the loan limit was lower than the 2020 HECM limit of USD 765.600 and your value is equal to or higher than the HUD limit, especially the limit that was in force at the time the loan was closed.
You are now adding a younger spouse who was under 62 at the time of the loan, and they were not eligible spouses who did not take out a loan to protect them from selling the house after your death.
To significantly benefit from a lower interest rate or margin – it is difficult and we will go further, most of the refinancing itself is not favorable.
Refinancing for a larger own or huge reverse mortgage plan.