5 Things to Know About Refinancing a Reverse Mortgage

Reverse mortgages, it’s hard not to hear about them these days.  After all, millions of Americans are nearing retirement age and the for many, their most valuable asset is their home.  As such, it makes sense that today’s seniors would want to look at options to tap into the equity they have built up in their home’s over the years.  Even if you already have a reverse mortgage, did you know it’s even possible to refinance in the future? That’s right, and here are five things to know about refinancing a reverse mortgage.

  • Reasons to Refinance

One of the biggest reasons would be time.  If your reverse mortgage is more than 10-years-old, then you might be time to freshen up the agreement.  For example, while interest rates were low 10 years ago, they are even lower today and if the Fed keeps raising rates, then this year might be the last year of ultra-low rates.  As such, there is no better time than now to take advantage of low rates before they end.

In addition, the housing market in your area might be on the upswing.  This means that your home might be worth more today than when you originally signed your reverse mortgage.   Or maybe your spouse was under the age of 62 at the time you closed your reserve mortgage.  If this is the case, then a refinance is a good way to get a spouse’s name on the loan as well.

  • How Will I Benefit

As most reverse mortgages are insured by the Federal Housing Administration (FHA), then one thing you will need to undergo before closing your loan is counseling.  While this counseling is not always free, it will help to walk you through every aspect of your reverse mortgage to make sure it is in your best interests.

In addition, you will have to pay additional closing costs if you decide to refinance your reverse mortgage.  As such, you want to look at the costs and see if the benefits will work in your favor.  Also, keep in mind that your homeowner’s insurance premium might increase as the value of your home will have probably increased in value since your first mortgage.

  • The Application Process

Like every mortgage, the process begins with an application.  The difference is that this application will be for a new reverse mortgage.  As mentioned, this will also mean that you will need to schedule a new counseling session to review the terms of your mortgage.

While this is an added step, it is also a safety net to make sure that your refinanced reverse mortgage makes sense for you.  This is a good move as there are no shortage of people looking to take advantage of seniors.  If anything, it just gives you some extra time to think through the decision.

Once your counseling session is complete, you will receive an approval notice and then you can schedule your closing.  As this is a refinance, one part of the closing will be to pay off the balance due on your original reverse mortgage.

Depending on the terms of your new reverse mortgage, you will either receive a check for the additional cash from the new reverse mortgage; or the new amount available will be set aside in a checking account which you can use later.

  • Closing Costs

While more and more lenders are offering low or no-cost reverse mortgages, most will require you to pay closing costs.  This will include the appropriate searches, origination fees, legal fees, and even counseling costs.

As such, you need to ask your lender what the costs will be.  This way you can make sure there are no last-minute surprises.  If there are, then don’t be afraid to walk away from the closing table, or you can use your three-day right of rescission to void the mortgage if you change your mind.

  • Can Heirs Refinance

Unless your heirs are over the age of 62 and are listed on the mortgage note, then they cannot refinance the reverse mortgage.  Remember, these loans become due when the borrowers no longer live in the house.  So, the only way an ‘heir’ can refinance a reverse mortgage is if they are named on the loan in the first place.  Barring that, your heirs will need to pay off the loan if they seek to keep the property in the family.