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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