The Federal Reserve has taken the action of cutting interest rates to almost 0%1 due to the impact on the economy from the coronavirus. While this a great time for borrowers considering a reverse mortgage, it may be an even better time for those borrowers who already have a reverse mortgage to think about refinancing.
Why Refinance a Reverse Mortgage?
There are a few reasons that may prove advantageous for borrowers to refinance their current reverse mortgage.
- Interest rates are lower than the interest rate on your current mortgage. During the life of the loan, interest accrues and, if mortgage interest rates go down or you have an adjustable-rate reverse mortgage, you may want to refinance to a lower interest rate or to have a fixed interest rate that won’t fluctuate.
- Your property value may have increased since you closed on your loan and by refinancing, you may be able to take more money out.
- You may want to change your loan type (Fixed or Adjustable) or select a different disbursement option.
- The Maximum Claim Amount (MCA) for 2020 increased to $765,600, which may allow borrowers to access more funds.
What you should know if considering refinancing a reverse mortgage?
When refinancing your loan, you want to make sure there is a benefit, and using the 5-5 rule will help to determine if you should move forward.
- You need to have your current reverse mortgage for at least 18 months before you can refinance.
- The amount of your loan increase when refinancing must be 5 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. So, 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.
To learn if refinancing your current reverse mortgage can benefit you, call 1-800-976-6211 and speak with a licensed loan advisor for more information.
1https://www.nbcnews.com/better/lifestyle/fed-cut-rates-nearly-zero-here-s-what-it-means-ncna1162141