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Yes. You Can Refinance a Reverse Mortgage

December 19th, 2011
     

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question-answer

Question from our reader “Can you refinance a reverse mortgage?”

I received a call from the son and daughter of a senior borrower today and they wanted to know if their mother could refinance her reverse mortgage loan. I answered them honestly that yes, she could, but had to ask why was she thinking about refinancing. The reason I asked for the borrower’s motivation was because I had a borrower call just a week before and ask if he could refinance because he was receiving a payment and he wanted to change to a line of credit. I told him that he needed to contact his lender, that with a small fee he could change his existing loan and not have to incur any additional costs for a new loan. The limits had not changed since he had done his initial loan and it did not make any sense for him to look into refinancing.

Back to the first borrower. When I received her information, I saw that she had taken an annual adjustable rate, that the HUD Lending Limit in her area had gone up a good deal, that her initial mortgage was taken with her husband who was five years younger but had since passed and that it really did make sense for her to refinance into a new monthly adjustable reverse mortgage loan. Since the passing of her husband, she really needed the extra income and I was glad we were able to help her out.

The things you have to remember when you consider refinancing a reverse mortgage loan is that HUD has a “Five Times Benefit” rule to determine whether or not the borrower has to go back through counseling again. The five times benefit means that you have to take all the costs incurred to do the new loan and multiply those by 5 and if the borrower is not receiving at least 5 times or more this much money with the new loan over the old loan, then the borrower must attend counseling again.

It doesn’t mean the borrower can’t get the loan, if it still makes sense, they just have to go through the counseling again to make sure they again understand the program. A good way to illustrate this is that if all the costs for the new loan would total $10,000, then the borrower would have to net $50,000 more on the new loan (there is a formula that the lenders have to follow per HUD guidelines which also accounts for servicing set-asides but for simplicity sake, this is a simplification of the policy). In my borrower’s case, she wound up netting a significantly higher benefit and did not have to attend counseling again.

The costs you have to incur are all the same costs as when you got your first reverse mortgage (title, escrow, appraisal, origination fee, etc.) with the exception of one…the mortgage insurance. The mortgage insurance from the loan being paid off is transferred to the new loan so only the difference from the old level to the new level is what the borrower has to pay on a refinance. For example, if the old mortgage insurance was based on a lending limit of $200,000 and the new limit was $225,000, then the mortgage insurance would be 2% of the difference between the two, or $500 instead of the $4511.11 it would normally cost. The borrower already paid the other $4,011.11 on the first loan and HUD does not charge it a second time for the new refinance.

By and large, if there has been a change in your area or a life change with the original borrowers, it may make sense to look into a refinance. Give us a call and let us look at your circumstances but if it doesn’t make sense for you, we will tell you right up front. There is no reason to incur costs unless you, the borrower, really are going to benefit by doing so. If you are considering a reverse mortgage refinance it’s best to take a look at today’s current interest rates and also use our calculator to estimate your new HECM loan.

“Reverse Mortgage Refinance” by www.allrmc.com

The experts at All Reverse Mortgage® are here to answer your questions! If you have a question regarding the refinance of your reverse mortgage give us a call Toll Free (800) 565-1722 or request a quote by clicking here »

PS – We also welcome and respond to comments below…


6 Comment(s)
Reverse Mortagage
6/3/09 10:39am
Reverse Mortgage refinance is possible.but you should keep your eyes on the benefits.
john geyer
6/3/09 4:56pm
i have a reverse mortage with wells fargo. when we took it out in 2006 it was paying 6.5% on the unused portion of the loan . it now pay2.0% if i could find a lender that pays at least 1.5% would it be worth while to refinance my mortage/
Mortgage Loan Modification
8/5/09 7:38am
Thanks for sharing this post.
Reba Buckner
1/15/10 10:44pm
I now have a reverse mortgage, and wish to refinance in order to purchase another home. I want to sell the home I’m in now, I have 90,000 equity in my home now..according to my last statement 12/31/2010. How much would I receive, and what would it cost me to refinance? Would I have to pay all of those charges I paid when I closed on my reverse mortgage? I plan to sell the home I’m in… once I have completed a refinance. Thanks in advance for your help. Sincerely, Reba Buckner
Rose
5/13/10 9:12pm
How soon can you do a Reverse Mortgage on a home that was just purchased for a value much less than it’s worth in order to use the appraisal amount instead of the purchase amount?
Josephine
11/29/10 11:21pm
I have the same question as Reba Buckner, except, I now own the new home I intend to move into, but in need of roof repairs, the old home has a reverse mortgage on it and is up for sale, but I cannot move into my new home until the roof is repaired on it….can you tell me how can I have my roof repaired and should I refinance into a new loan or refinance into a new reverse loan to fix my roof.

Yes. You Can Refinance a Reverse Mortgage By Mike Branson – Add me to your circles

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32 Responses to “Yes. You Can Refinance a Reverse Mortgage”

  1. Sandra says:

    I just want to see about refinancing my reverse mortgage, are the current interest rates lower?

  2. Raymond P says:

    I have a reverse mortgage with a line of credit for $75000 which is used up. I would like to refinance for a lump sum. The house was appraised at $136000 a year ago and the taxes say it is worth $184000.

  3. admin says:

    Hi Raymond,

    HUD has some very precise requirements on the reverse mortgage refinance but they can be done. It will all depend on the parameters that were in place when you did your first reverse mortgage and what your current benefits are. There are also some exceptions HUD will allow so your best bet is to contact us with your most recent monthly statement available and we will be happy to run the numbers. You may just qualify for a low fixed rate and you won’t have to pay a second time for any Up-Front Mortgage Insurance Premium for which you have already paid. Feel free to call at (800) 565-1722 or email customercare@allrmc.com. Thank You!

  4. s2kreno says:

    Good morning,

    I am curious about refinancing to a fixed rate. If you have incurred a balance under a scheme of monthly payments and a variable rate, can you convert that balance to a fixed rate (lump sum) when you refinance?

  5. Julie C. says:

    Hello – My aunt has a reverse mortgage for her condo. She is 83 and in failing health. If she passes on, would my husband and I be able to refinance the loan to keep the property (for rental) or would the property need to be sold to pay back the loan? I want to be able to have all the answers for my aunt when we sit together to review everything (I’m her power of attorney at this point and will be the executrix of the will when it is written). Thank you for any help you can provide.

  6. Mike Branson says:

    Hi Julie,

    I’m sorry that your aunt feels she has to worry about this at a time when her health is not good. If you are your aunt’s heir, she does not have to worry about whether or not you can keep the property after her passing. As her heir, the property would become yours and what you did at that time is entirely up to you. You could refinance the loan with other financing and keep the property, you could sell the property and pay the loan off with the proceeds or you could pay the loan off with other funds available to you. In fact, the first thing that you want to do is find out the value of the home. If the current value is less than what is owed on the home, you can pay off the loan by paying 95% of the current value of the property rather than the full balance of the reverse mortgage. Heirs can also choose not to become involved in the sale of the home if they do not wish to and neither HUD nor the Lender can ever seek to repay the loan with any other assets – the home is the sole source they can look to for repayment of the debt.

    This is a time when your aunt should be concentrating on improving her health, not worrying about her reverse mortgage. Luckily, you don’t need to worry about it either since you can choose the course of action that is best for you and your family as well.

  7. Margie Rose says:

    My parents are both now deceased, they have a reverse mortgage on the home and leaving

    me heir to the home, I am also over 62 years. My question, can I get a reverse mortgage

    on top of the old reverse mortgage? Or can I refinance with signing a new reverse mortgage

    and will the new signing pay off the old reverse morgage?

  8. Mike Branson says:

    Hi Margie,

    Being over 62, you do meet the requirements for a reverse mortgage of your own. The loan will be based on the home’s value or the HUD maximum Limit, your age, and interest rates so depending on those factors when your parents secured their loan, you may or may not be able to get a loan that is sufficient to pay off the entire balance on the existing loan. The only way to know is to have a reverse mortgage lender run your information through the calculator to see what your benefits will be. If your benefit amount is not adequate to cover the entire balance owed on your parents’ reverse mortgage, you can come in with the difference to allow you to still close using a reverse mortgage if you so choose. Of course you could always utilize other financing instead of a new reverse mortgage if you wish instead. However, the existing loan would have to be paid off now that your parents are no longer living in the home.

  9. Margaret Greene says:

    Good day,

    I have a question. I realize that there are some changes about to go into effect with the reverse mortgage. I would to take one out before the deadline and need your advise. Which company would you recommend that has the lowest interest rates? I would also like to know if there are any suggestions you might have to make this process for me as easy as possible. I would like to take a lump sum out.

    Thanks
    Margaret

  10. Mike Branson says:

    Hi Margaret,

    I would love for you to compare our rates and fees to any company. Regardless of which company you ultimately choose, keep in mind that you do not have much time left to complete your counseling and begin your loan if you plan to utilize the fixed rate option. We do not charge an origination fee on the fixed rate loan and there are several interest rate options which will even give you more funds with a slightly higher rate if that if your goal.

    We would be happy to make this as easy a process for you as possible should you choose to go with All Reverse.

  11. Joanna says:

    Hello
    Recently my boyfriend’s grandfather passed away. He had a Revese mortgage on his home. His son ( my boyfriend’s father) is moving away and he is not interested on owing nor being the heir of that house. Is it possible for me ( as athird person) to buy the house from the heir ( in this case, my boyfriends father) and pay off the reverse mortgage remaining debt? Can I buy this house from him or it has to be bought from the bank? What would be the difference, economically and legally speaking? I need some guidance, I dont even know where to start. Thank You

  12. Mike Branson says:

    Hi Joanna,

    Your boyfriend’s father owns the home, he can sell it to whomever he wishes. Whether or not it makes economic sense for you would depend on your circumstances. He can keep the home by paying off the existing mortgage at the amount owed or 95% of the current market value of the home, whichever is less. If the home is worth more than is owed on it, he can “sell” to you or simply deed the home to you but you have to realize that the loan is still going to be due and payable to the lender and you will need to pay off the amount owed or you would lose the home to foreclosure. The foreclosure would be against your Boyfriend’s Grandfather as he was the one who agreed to the loan terms and so your credit would not be affected, but you would lose the house nonetheless so you may want to keep this in mind if there is to be any money changing hands.

    I would definitely tell you to contact the current lender from the servicing statement and also to get the advice of a good real estate attorney before you entered into any contracts or paid any money to anyone.

  13. vivian says:

    i have an HECM loan for 2 yrs. total loan balance is $238.000, loan interest rates 4.999%. I now wish to move to another state to be near family. currently not feelinf safe alone. Please inform me as to my options. thank you

  14. Mike Branson says:

    Hi Vivian,

    Just like any loan, you own the house and you can sell it at any time. The reverse mortgage has no prepayment penalty and so all you need to do is the same thing you would in any other circumstance – list your home and sell it and the loan will be paid in full through the closing and any remaining equity would be paid to you by the closing agent.

  15. Larry joyner says:

    I currently have a reverse mortgage with an fixed interest rate of 5.56%. My current outstanding principal balance is $525,745.71. The original appraisel in 2010 was $814,000.00 which i consider as low. My question is whether i could refinance for some lump sum of credit line. If not, could the rate be lowered effectively?

  16. Mike Branson says:

    Hi Larry,

    The honest answer is yes, HUD allows for this, but the practical answer is that your loan would not qualify for the refinance. Firstly, for a HECM to HECM refinance, you have to have what HUD refers to as a “5 times benefit”. In other words, you would have to get at least 5 times the cost of the new loan in benefits from the loan. Since the Lending Limit is $625,500, in today’s market, the maximum Principal Limit that any borrower would receive is $485,388 which means that not only would you not receive a 5 times benefit, even if you were at the age where you received the maximum benefit (90 years old), you would still have to bring money in just to close the loan and would therefore not receive any benefit, let alone 5 times the cost to get the new loan (minimum of around $13,000 and could be much higher depending on where you live and what the closing costs are). If you are not yet 90 years old, then your benefit amount under the program would be less than the $485,388 requiring you to bring in yet more money.

    Each loan is an individual loan made by a lender and then securitized and the security is then sold in the secondary market as a GNMA security. The investors who buy the securities do so knowing what return they will receive and therefore there is no interest rate reduction feature available. The loan has no prepayment penalty at any time so you do have the option of refinancing with other types of financing. If you ever choose to sell your home and relocate, that too is an option with no prepayment penalty. Unfortunately though, when you start out at the maximum amount the program will allow (as you did with an appraised value of $814,000), and then you begin to accrue interest, you don’t leave yourself any room for growth under the program later.

  17. Larry Joyner says:

    Thanks for the explanation. Very clear.

  18. LoveMN says:

    Hello,
    I’m really frustrated along with many of my family members… My 93 year old grandmother had 10 acres of land that she is most passionate about having heired to the family for generations to come. My aunt who lives on the land nearly 20 years ago built a house along with her husband (now deceased) on the land. After my aunts husband died as you know she aquired alot of bills and debt. The money that she received from his death benefit she entrusted to her daughter which spent every last dime. My aunts home as she found out was in forclosure because daughter failed to pay mortgage for over a period of time. My aunt hit her head and fell out in the bathroom bursting her mouth open teeth through chin (hospitalized) Out of the frustration my mother VB a realtor in Ga. advised her to try to reduce her mortgage through refinancing. Her property mortgage went from 791 to 251 $$ a month. The only way the bank was able to refinance was if property was in my aunts name so my mother the power of attorney for my grandmother deeded the property over to my aunt for the specific verbal agreement/promise to meet the needs of refinance. Behind my mothers back and all the generations to benefit from a legacy, disappointingly my aunt her son, and his sisters saw opportunity to deceive by getting a reverse mortgage on the land my aunts house. My grandmother has no idea this has happened. At this point I’m trying to contact a great attorney in Florida to represent our family and protect our legacy. We feel that this was a selfish act and scheme to get money theft by deception and I’m seeking a direction to go by in this matter this has created a war in our family. My grandmother is still alive and I’m mad as Hell because they didn’t want the land, or legacy they just wanted the money… Greedy Stupid and Dumb!

    Please if you have any clue as to what my family and I can do at this point it will be most Godly and appreciated.

    Thanks

  19. LoveMN says:

    Also… I feel as though my grandmother 93 should know. I don’t want her to die over this stupidity but this may be the only way to get our land back by giving her the opportunity to utilize her senior rights the legal and right way.

  20. Mike Branson says:

    Good Afternoon,

    I’m sorry but this is out of my area of expertise. There is nothing about the reverse mortgage that is questionable, the problems all seem to stem from family members and their actions with or against one-another. Whether it be a standard forward mortgage, a reverse mortgage or a second trust deed, if third parties get involved who do not have the best interests of the family and the property owner at heart, they may look for ways to deceive or take things that do not belong to them. I think your first idea, to get an attorney involved as soon as possible, is your best plan of action. You all need to know the law and what rights you have and those your mother may have signed away with the power of attorney and the transfer of title. I wish you and your family the best.

  21. ilona says:

    I HAVE A QUESTION.THE HOUSE IS ON REVERSE MORGAGE AND BECAUSE OF MY AGE MY HUSBAND TOOK MY NAME FROM THE TITLE / 23 YEARS DIFFERENT/IF HE REFINANCE THE REVERSE MORGAGE , CAN HE PUT MY NAME BACK ON THE HOUSE?

  22. Mike Branson says:

    Great question Ilona. This is something that I am often asked and I want to make sure that people are absolutely clear on the answer. Yes, HUD does allow the borrower to refinance the loan and they will even waive the 5 times benefit requirement when bringing on a previously under-aged spouse. But you have to remember that the younger spouse will receive a lower amount of benefit than an older spouse in most instances and therefore, the mount you would be eligible for when you turn 62 will probably be less than your spouse received in benefits. This is especially true if HUD lowers the benefits for the program is we all expect them to do in the very near future.

    To further make it harder to refinance if borrowers do not plan ahead, the interest that accrues on the reverse mortgage may make the loan amount required to pay off the existing loan even further out of reach for a new reverse mortgage if borrowers borrowed the maximum amount on the first loan and then accrued interest on the loan. So the actual answer is yes, you can refinance it when you turn 62 to add yourself to the loan but the practical answer is that if you plan to do it, you need to be very careful that you do not run up the balance to a point where the new loan will not allow you to unless you keep a portion of the funds available to pay down the balance if required.

  23. Nancy says:

    THIS IS ALMOST ME BUT I FOLLOW WITH MY DETAILS::

    Margie Rose says:
    February 26, 2013 at 10:12 am
    My parents are both now deceased, they have a reverse mortgage on the home and leaving
    me heir to the home, I am also over 62 years. My question, can I get a reverse mortgage
    on top of the old reverse mortgage? Or can I refinance with signing a new reverse mortgage
    and will the new signing pay off the old reverse morgage?
    Mike Branson says:
    February 26, 2013 at 11:38 am
    Hi Margie,
    Being over 62, you do meet the requirements for a reverse mortgage of your own.
    The loan will be based on the home’s value or the HUD maximum Limit, your age, and interest rates so depending on those factors when your parents secured their loan, you may or may not be able to get a loan that is sufficient to pay off the entire balance on the existing loan.
    The only way to know is to have a reverse mortgage lender run your information through the calculator to see what your benefits will be.
    If your benefit amount is not adequate to cover the entire balance owed on your parents’ reverse mortgage, you can come in with the difference to allow you to still close using a reverse mortgage if you so choose.
    Of course you could always utilize other financing instead of a new reverse mortgage if you wish instead.
    However, the existing loan would have to be paid off now that your parents are no longer living in the home.

    MY DETAILS:
    Same situation but figures are unlikely to meet current HUD requirements,. Home is now a fixer upper as remodeling was underway upon the death and the economy had gone south. I figure the balance owed (apx 300K) is around 100K more than the current value of the home. The current lender will accept 95% of appraised value as a pay off. Currently my income will not qualify me for a loan of that amount. Someone at the lender office suggested I look into a revised reverse mortgage? Where would I obtain information about doing that?

    I firmly believe I could raise the value of this home by completing the renovation with the materials that I have here to do it (one bathroom is completely gutted but I have the tile and fixtures/shower stall and plumbing and marble tile and new sink). This renovation also creates a bedroom from the utility room by moving one wall 6 inches into the bathroom area and closeting the washer and dryer. The deck needs to be repaired as it is rotting and the stairway floor needs to be completed. With these repairs alone the home would come close to if not exceed the current amount owed on the reverse mortgage. Trouble that I see is that the formula of 40% equity would not be meet and I am thinking that would stop my ability of obtaining a reverse mortgage in my 66 year old name. Other suggestion was for me to buy it on a short sale and then set up for a reverse mortgage on the lesser value. I can fully understand that however I would think I would have to qualify for a loan in the amount of the short sale offer given. Currently I would be unable to do so on my income. My credit rating is Excellent but my income is not. If I put a bid in and during the process the value of the home raised (both my renovations and the current economy) my short sale amount could become the 60% of value on the new appraised value but the time closing came (or darn close to it). The could I have my financing become a reverse mortgage at that time?

    If I walk I will have no place to live and my income qualifies for low income housing but there is a list a mile long to get such so I could be on the street. I have never bought a home before and I have no idea what I am doing. I have lived in this home for the majority of the years it has existed. I am trying to sell things off but people are not buying unpractical things these days. I am in a real pickle. If you could give me some advise and direction I would be grateful.

  24. Mike Branson says:

    Hi Nancy,

    I’m not sure I know how to advise you. It sounds like the best possible option for you would be to get the home at 95% of the current value and then you would gain a lot of instant equity when the value rose with your improvements but to do that, you would have to be able to get some kind of loan at this time. I am not aware of any lending programs that would give you the funds you need to purchase the property based on the parameters you set forth. However, there may be something or which I am not aware and it might be a good use of time to contact a local counseling agency to see if they are aware of any programs that might allow you to borrow the funds you need to purchase the home based on the current value and the estimated after-improvement value. I’m sorry, I don’t have that information.

  25. CARL says:

    I purchased a “four” unit property (short sale) to live in two years ago using a reverse mortgage. The property appraised for $360k. The property was in poor condition compared to identical properties in the area that were sold or valued at about $550k. After investing more than $150k into the property I have been told that mine will easily appraise for $600k. My original Principal Limit was $244k and currently has risen to $265k. My balance is $200k. As I settle in to retire I would like to increase my Principal Limit by refinancing with a new Reverse Mortgage so funds will be available if I should ever need them in the future. What would my new Principal Balance be if I refinance with a new Reverse Mortgage based on a property appraisal of $600k? And what will my costs be if I apply for a variable interest rate or fixed rate loan and take all the money up front? From reading other’s questions, I understand PMI will only be charged on the increase between the two loans. Thanks!

  26. Mike Branson says:

    Hi Carl,

    There really is no way to determine 100% the eligibility amounts or all of your options without a little more specific information on a HECM to HECM refinance and would need a copy of your most recent statement, the zip code where the property is located and your month and year of birth to be able to give you a more accurate answer. HUD has changed the program from when you received your last reverse mortgage and borrowers no longer receive as much money under the program as they did before. Also, you can no longer get all the available proceeds as a lump sum under the new guidelines. But as a “general” response, I would say that based on the numbers I do have, you would probably qualify under the HUD rules for the refinance requirements. We would have to run the actual numbers to see that you meet the HUD 5 times benefit rule and I would be happy to show you how much you would be able to receive, and the options for receipt of the funds if you would like to send us the information requested above.

    On your last point, you do only pay the difference of the Mortgage Insurance that you paid on the last transaction and the premium on the new program, but another important thing to remember is that the HUD Up-Front Mortgage Insurance Premium (UFMIP) on the program for loans utilizing the amount of the program that you would (greater than 60% of the available Principal Limit) has been increased to 2.5% from 2%. So on $360,000 at 2% your old UFMIP would have been $7,200 and the new value of $600,000 at 2.5% is $15,000 so the difference that would be due with the refinance would be $7800.00.

  27. Pam Hoffman says:

    Hi,
    My husband called your number to inquire about refinancing a reverse mortgage we oringinally had with Metropolitan, that was sold to Champion.
    Our chief reason to inquire is that at the time we took out this reverse mortgage, I was not 62 yet (almost 63 now) & we were told I could be added thereafter.
    Another reason we’re interested is that we would like to respond to an offer we have from a camp behind us to purchase 7.5 acres of our 13.9 acres that are essentially useless to us (boulders, etc) but helpful for them. By selling this land & having my name on the reverse mortgage, it would also save a lot on additional life insurance I’d need to pay off the current reverse mortgage, so I wouldn’t have to leave our home, if my husband pre-deceases me.
    Reading that we’d only have to pay the difference in the original a mortgage insurance we paid, gave us another incentive.
    When my husband called your toll free #, though, he was told that it’d be $59,000 to add my name & that if the original contract stated we could not sell any land, we wouldn’t be able to sell the land!
    If we’d be paying off the first contract, wouldn’t we be able to include that we could sell that portion of land in the new contract?
    We understand that the appraisal would then be for the home & the remaining 6.4 acres, but again, the land is locked & is of no use to anyone else, but the camp that backs up to us.
    Any suggestions or information you could give us would be greatly appreciated!
    Sincerely, Pam Hoffman

  28. Mike Branson says:

    Hi Pam,

    You have a couple of different issues here. The first is the new loan. You can refinance the reverse mortgage now to add a previously under aged spouse and it is true that when you do a HECM to HECM refinance, that portion of the Initial Mortgage Insurance Premium that you paid on the first loan would not have to be repaid on the refinance. In other words, just to use round numbers and to make things easy, if you paid $5,000 on the first loan in the Initial Mortgage Insurance Premium (IMIP) premium and based on the current program the amount would be $6,000 for a new loan based on your current value, you would not have to repay that portion that you already paid ($5,000) and the only amount you would have to pay would be $1,000 for the refinance. If however the values had dropped significantly and the new IMIP would only be $4,500, you would not owe anything on the IMIP for the new loan and there is also no credit back to you for the difference.

    Based on the fact that the minimum age for a reverse mortgage is 62, at 63 you are at the very lowest end of the available benefits. I don’t know how old your husband was when he got the reverse mortgage or how long you have had it, but there are a couple of factors that will lead to you having to bring in so much money to close a new loan now. Firstly, your husband is older and the benefits were based on his age and now you are going to benefits based on your age. Even if your husband was your age at the time the loan was taken out, if that was a few years ago, then there is interest that has accrued and you now go back to the start. Finally, HUD has changed the program 3 times in the past 5 years, lowering the benefit amount borrowers can receive under the program with the last change coming just in September of 2013. In other words, borrowers who take out reverse mortgages now do not receive as much money so those who seek to refinance will now find that unless they have experienced a great deal of appreciation in their home value, they will be forced to bring cash in to close the loan. If interest rates start to rise, it will only exacerbate this issue as borrowers receive less money once rates climb above the HUD floor of just over 5%.

    Now comes the tougher part, the division of the property. Once you get a loan that encompasses a piece of property (a reverse or forward mortgage), the only way to split off and sell a portion of that property is to get a partial reconveyance from the lender. The process for doing so is typically for the borrowers to get a survey for the land to be partitioned off, make a formal request of the lender to release the land from their lien and if granted, then you would be able to sell it. The lender will have to do an appraisal of the property (usually at a cost to the individual making the request) minus the additional land to determine what effect the lower acreage has on the value and marketability (as well as get HUD’s approval since the loan is insured by HUD).

    It’s hard to say which would be best, to do the split now while you still have another loan on the property and then get your next reverse mortgage after everything is said and done or do it then. Based on what you are telling me, I would be inclined to say it might be better to get it done now and here’s why. I believe that any lender will require you to use some of the money to pay down the existing loan even if it was based on a percentage of the property and not a percentage of the overall value. In other words, if the research showed that the value would not be impaired by allowing you to partition the 7.5 acres, I still thing that the lender would require you to use a good chunk of any proceeds to pay down the loan since the 7.5 acres represents roughly 54% of the total lot. So if you did it now and then did your refinance, the appraisal would be done on just the property as it stood at that time and if the value of the new property with 6.4 acres appraised for the same at that time as it did when it contained 13.9 acres, it would not affect your new loan or your proceeds in any way. Before you do anything though, you want to be sure to check sales in the area to be certain that any changes would still be typical for the area and marketable so that any changes you make would not impair your ability to get a new reverse mortgage in the future as well.

  29. Mike Branson says:

    Hi Pam,

    I’m sorry but on this question I really have to refer you to the tax specialist. We are not licensed nor legally allowed to give accounting advice and I really am not even familiar with the Turbo Tax Software so I wouldn’t be of much assistance you to in that arena either. I wish you the best.

  30. Pam Hoffman says:

    Thanks so much for your comments, Mike! I will share with my husband & look into getting permission now to partition the property. We will certainly keep you in mind, after we do our “homework.” Have a great day!

  31. colleen says:

    2011-I got a reverse mortgage-my name only. $58190.oo -2.77 highest interest per annum. One Reverse Mortgage sold to Silver Bank–all fine but could not redo to put husband on.
    May,2013-health a lil scary and wanted husbands name on it. old enough now!
    PROFICIO TAKES IT ON-IT IS $56,466 on house value at 140,000
    PAID OFF TO Silver Bank and add $3000.00 mortgage insurance plus costs new cash to us $24,021.05-new mortgage $84,375.00. (56 466 + 24 021=80,487
    They sell to CELINK and in 13 months it is $90,553.00 4.99%
    We see they charge 93 90 for mortgage insurance every month-why?
    We thought the one time mortgage insurance was it-doesn’t that insurance come into play if payment is not made-which does not apply in REVERSE MORTGAGE. Is this all up and up?
    It appears Proficio charged $760 at 1 1nd 1/4 % on this new part of loan and told us the interest was comparable.

  32. Mike Branson says:

    Hi Colleen,

     

    There are two elements to the Mortgage Insurance on every FHA-Insured loan (both reverse mortgages and forward mortgages).  You have the Up Front or now referred to as the Initial Mortgage Insurance Premium (IMIP) and then you have the renewal.  When you refinance a reverse mortgage and you are keeping one of the borrowers the same and just adding a new borrower, then you do not have to re-pay any portion of the IMIP that you already paid, but you would have to pay the difference, if any, from the old premium to the new if the new premium was higher.  For example, if your old premium when you originally closed the loan was $3,000 but based on today’s HUD guidelines and your property’s value the IMIP would be $4,000 to close the loan, you would not have to pay the first $3,000 that you had already paid but would be responsible for the additional $1,000.

     

    The monthly premium accrues on all FHA reverse mortgage loans and it is currently based on 1.25% of the outstanding balance for renewal of the insurance.  The insurance protects you in the event the lender ever goes out of business and you are still looking for payments on your reverse mortgage loan, it protects the lender in the event of default or excessive loan to values and without the insurance, the loan would not be available.

     

    With regard to the costs, as long as the lender did not exceed HUD’s maximum and they disclosed all of this to you in the beginning, then they are ok on their charges.  However, I urge borrowers to shop a few lenders and compare the costs.  I know it’s too late now but we typically do the refinance loans without origination fees and often can do them with less than $700 in total fees.  It pays to compare.

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