Interest rates continue to remain low, but no one knows for how much longer. Many senior homeowners who have a reverse mortgage on their current home have seen their home values increase and may be able to benefit from refinancing. There could be many benefits to refinancing that you might not realize, including having access to additional cash.
Lower Interest Rates
It may be beneficial to refinance your reverse mortgage loan, if your interest rate is higher than 4%, and get into a lower rate. Those who have an adjustable-rate mortgage may find security in locking in a low fixed rate. If you have a fixed-rate mortgage, refinancing into a new fixed or adjustable rate could be lower than your current rate.
Higher Home Values
With increased home values, homeowners may want to access the additional equity in their homes. By refinancing your Home Equity Conversion Mortgage loan (HECM), you may be able to access funds that weren’t available with your current loan because of the increase in your home equity.
For those borrowers who have seen their home values increase above the Maximum Claim Amount of $822,375, a HECM to Jumbo refinance may be a better refinance option. Depending on the lender, a jumbo reverse mortgage can allow senior borrowers access to a portion of their home’s equity up to $4,000,000.
Add Your Spouse
If your spouse is not already on the reverse mortgage, refinancing and adding them to the loan may help protect them in the event the loan becomes due and payable. By adding a spouse to the loan, they can continue to live in the home payment-free if the borrower passes away.1
Things to Keep in Mind
When refinancing your loan, you want to make sure there is a benefit, and using the 5-5 rule will help determine if there’s a benefit to refinance.
To be eligible to refinance, you must have your current reverse mortgage for at least 18 months.
When refinancing, the amount of your loan increase must be five times more than your closing costs. For example, if your closing costs are $4,000, your new reverse mortgage must be at least $20,000 more in additional funds.
The available benefit must be 5% or more of the amount of your reverse mortgage refinance. Once the closing costs have been paid and the original reverse mortgage has been paid off, what remains should be 5% or more of the total you refinanced. For instance, if your original reverse mortgage was for $125,000, your refinance is for $150,000 and closing costs are $1,000, you would have $24,000 available which meets the loan-proceeds test.
Call 1-800-976-6211 and speak with a licensed loan advisor for more information and determine if you can benefit from refinancing your reverse mortgage loan.
1 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.