Like a conventional mortgage, a reverse mortgage can be refinanced at any point during the loan’s life without incurring penalties. This option can be a strategic move in certain situations, allowing the borrower to adjust their loan to better suit their financial needs and goals.
When refinancing a reverse mortgage makes sense
Several situations may make refinancing a reverse mortgage a savvy financial decision. These can include:
- Locking in a more favorable interest rate. If market conditions have led to lower interest rates, refinancing could potentially reduce the amount due when the loan matures.
- Accessing more equity. If a home’s value has appreciated significantly, refinancing might make a borrower eligible for a larger loan amount.
- Reflecting a significant life event. If a borrower gets married or their spouse ages into reverse mortgage eligibility, refinancing provides an opportunity to add their spouse to the loan.
Note that refinancing a reverse mortgage replaces your old loan with a new one, creating new closing costs and fees. Borrowers must also reattend and pay for reverse mortgage counseling with a HUD-approved, third-party counselor, typically costing $150-200.
How refinancing a reverse mortgage works
While refinancing a reverse mortgage shares similarities with refinancing a conventional loan, specific requirements may apply. These include:
- Age Requirement: The refinancing HECM borrower must typically be 62 years of age or older, though certain proprietary reverse mortgages may have a lower minimum age.
- Primary Residence: The property being refinanced must be maintained as the borrower’s primary residence.
- Sufficient Equity: There must be adequate equity in the home to be eligible for refinancing.
- Financial Capability: The borrower must demonstrate the ability to maintain the property, including paying taxes, insurance, and any applicable HOA or association dues.
Note that individual lenders may have additional criteria for eligibility.
Key considerations before refinancing a reverse mortgage
Many different life circumstances may call for refinancing their reverse mortgage. Before proceeding, it’s crucial to evaluate whether this financial move aligns with one’s long-term goals and current finances. Reverse mortgage borrowers should ask themselves:
- Do I hope to leave home equity to my heirs?
- Will refinancing hurt my cash flow during retirement?
- Is locking in a new interest rate worth the time and cost of refinancing?
- Am I working with a trusted lender?
As with all important financial matters, borrowers should discuss any major decisions with a qualified financial advisor and know their options before proceeding.
