Can You Refinance a Reverse Mortgage Loan?

Many homeowners refinance their traditional mortgages to obtain more favorable terms as they pay down their home loans. However, it’s also possible to refinance a reverse mortgage—a loan that lets older adults tap into their home equity without selling or making monthly payments.

Here’s how a reverse mortgage refinance works, and when it might make financial sense to refinance one.

A reverse mortgage is a unique type of loan that allows homeowners aged 62 and older to tap into their home equity. With a reverse mortgage, you don’t make monthly payments – instead, the lender pays you. The loan comes due when you sell the home, move out permanently, or pass away.

At some point, you may want to refinance your reverse mortgage. Refinancing can help you take advantage of better terms, lower rates, or increased home values Here’s what you need to know about refinancing a reverse mortgage loan.

When to Consider Refinancing

There are a few key reasons you may want to refinance an existing reverse mortgage:

Lower interest rate: Interest rates fluctuate over time. Refinancing could allow you to lock in a lower rate and reduce your total interest costs.
Higher home value If your home has appreciated significantly since you first took out the loan, refinancing could give you access to more equity.
Change in life situation: Maybe you’ve gotten married and want to add your spouse to the loan. Or perhaps you now need more monthly income or a larger line of credit.
Switch lenders: You may be able to find better terms with a different lender. Each lender has its own policies and rates.

Refinancing Process

Refinancing a reverse mortgage functions much like refinancing any other type of mortgage

You’ll need to apply and undergo a financial assessment by the new lender.
The lender will order an appraisal to determine your current home value.
You’ll pay various closing costs, such as appraisal and title fees. The upfront mortgage insurance may be waived on your first refinance.
The new loan pays off the old one. Any unused proceeds get transferred over or paid out to you.
You start making draws on the new loan based on its terms.

One key difference is that reverse mortgage refinances must meet FHA tests showing the loan benefits the borrower. You’ll typically need to get a reasonable amount of new proceeds for the refi to make sense.

Timing Considerations

When can you refinance a reverse mortgage? Here are some timing factors:

Seasoning rules: Most lenders require you to have had the original loan for 12-18 months before refinancing. This prevents excessive re-financing.
One-year waiting period: FHA requires a full 12 months between reverse mortgage refinances. You can’t continually refi every 6 months.
Loan status: You need to have an existing reverse mortgage first. You can’t refinance a traditional mortgage into a reverse mortgage.
Home value growth: Enough appreciation must have occurred to justify the refi. Small gains may not be worthwhile once closing costs are considered.

Alternatives to Refinancing

Instead of doing a full refinance, you may have other options like:

Recasting the loan to re-amortize the balance over a longer term
Modifying the loan to remove an ex-spouse per divorce decree
Requesting an interest rate reduction from your current lender
Taking a reverse mortgage on a second property

Talk to a loan officer to discuss whether these alternatives may suit your situation.

Weighing the Pros and Cons

As with any refinance, weigh the advantages against the costs. Will the savings from lower rates or increased proceeds exceed the closing costs? How long would you need to stay in the home to recoup the expenses?

Refinancing offers an opportunity to improve your loan terms. But make sure the numbers make sense before proceeding. Consult with a loan officer or financial advisor to review your specific situation.

can you refinance a reverse mortgage loan

What are the pros and cons of a reverse mortgage refinance?

A reverse mortgage refinance can allow you to access more home equity and lower interest rates, as well as set up new payment options. You could also add a new co-borrower to the loan, such as a spouse or partner. On the other hand, refinancing involves fees that can eat into home equity faster and make it hard to pay back the loan.

Reverse Mortgage Refinance Eligibility

The requirements for a reverse mortgage refinance are nearly identical to those for getting a reverse mortgage the first time around. If you want to refinance into a new HECM reverse mortgage, you must:

Be age 62 or older.
Own the property outright or have considerable equity in it.
Live in the home as your principal residence.
Not be delinquent on any federal debt (e.g., taxes or student loans).
Have the financial resources to pay property taxes, homeowners insurance, homeowners association fees, and home maintenance.
Participate in a consumer information session given by a HUD-approved counselor.
Not have refinanced your reverse mortgage within the previous 18 months.

Additionally, the property must meet FHA requirements, such as being adequately insured and free of health or safety hazards.

While you can access about 50% to 60% of your home equity with a reverse mortgage, you can tap up to 80% with a cash-out refinance.

Can You Refinance Your Home With A Reverse Mortgage

FAQ

Can you do a refinance on a reverse mortgage?

Yes, you can refinance your reverse mortgage. Here are some reasons you might want to do it: Get more money if your home’s value has increased. Get more money if Home Equity Conversion Mortgage (HECM) limits have increased.

Can you increase your reverse mortgage amount?

If the value of your home rises, you could increase the amount that you receive from your reverse mortgage. Refinancing for a new reverse mortgage entails costs. You may want to refinance a reverse mortgage to tap more equity, get a better interest rate or add a spouse to the loan.

Can you pay off a reverse mortgage at any time?

There are no rules that prevent you from paying off a reverse mortgage early. The most straightforward way to do so is to begin making payments on the loan ahead of time. This will also reduce the amount of interest you owe because interest won’t accrue on the balance paid off.

What are the downfalls to a reverse mortgage?

A reverse mortgage isn’t free money: The borrowing costs can be high, and you’ll still need to pay for homeowners insurance and property taxes. Reverse mortgages can also complicate life for your heirs, especially if they don’t want the home or the home’s value isn’t enough to cover what’s owed.

What is a reverse mortgage refinance?

Refinancing a reverse mortgage can allow you to access more home equity and lower interest rates, as well as set up new payment options. You could also add a new co-borrower to the loan, such as a spouse or partner. However, refinancing involves fees that can eat into home equity faster and make it harder to pay back the loan.

What happens when you get a new reverse mortgage?

When you get a new reverse mortgage, the loan amount is based on your age, the home’s value, and the interest rate in the same way as for a first-time loan. You can receive the loan proceeds as a lump sum, a line of credit, regular monthly payments, or a combination of the latter two.

Should you refinance a reverse mortgage if you die?

For example, if your heirs don’t want to be forced into having to sell the home to clear the reverse mortgage when you pass away you might choose to refinance to a traditional home loan instead. Should You Refinance a Reverse Mortgage? Whether you should refinance your reverse mortgage or not can depend on your financial situation.

Can I add a co-borrower to a reverse mortgage?

If you want to add a spouse or partner as a co-borrower to a reverse mortgage and interest rates have fallen since you got the original loan, it could result in a larger payout and lower overall interest when the loan becomes due. However, you need to refinance the loan to add a co-borrower.