Quick Answer: In most cases, yes you can refinance a reverse mortgage into another reverse mortgage or a traditional mortgage if you meet the qualifying requirements. Requirements may vary by loan type and state.
Despite our best intentions, it can be hard to predict the future. There may be a time when a reverse mortgage borrower considers refinancing. In this article, we’ll look at when refinancing could make sense and how it works.
For reverse mortgage loans: The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
When refinancing a reverse mortgage makes sense
Reverse mortgages can be used as a strategic tool in retirement planning. When life circumstances or economic factors change, reassessing the tools could make sense. Common reasons to consider refinancing include:
- Lower interest rates: Taking advantage of lower rates could reduce the amount due when the loan matures
- Adding a spouse: This allows the spouse to access the loan proceeds if the original borrower passes away
- Increased home value: Higher property values could allow for a higher principal limit, depending on product guidelines
How refinancing a reverse mortgage works
The eligibility requirements for refinancing a Home Equity Conversion Mortgage (HECM) or proprietary reverse mortgage may look familiar. Just like the original reverse mortgage loan, the borrower must, at minimum:
- Meet the age requirement (62+ for HECMs)
- Live in the home as their primary residence
- Have enough equity in the home to meet loan requirements
- Have adequate income to maintain the property and pay property taxes, fees, and homeowners’ insurance
Different lenders may have additional requirements for which loans are eligible for refinance.
Things to consider before refinancing
Refinancing could be helpful in certain situations when it makes sense for your financial goals. Consider the following:
- Do you hope to pass on the equity in your home to your heirs?
- Will refinancing affect your monthly cash flow during retirement?
- Is the difference in interest rate meaningful enough to impact your finances?
- Are you working with a reputable and licensed lender?
As with any major financial decision, speak with a qualified financial advisor or mortgage professional to review your options before proceeding.
[Disclaimers]
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
