When homeowners older than 62 years acquire a loan through converting part of their equity into cash, it gets referred to as a reverse mortgage. Homeowners can supplement the retirement income they get by receiving regular payments every month. You can take a reverse mortgage either as a lump sum or through a line of credit which get accessed when the need arises. It’s unfortunate that many people do not understand about refinancing a reverse mortgage. But not anymore as in this article, I will give you a detailed insight on refinancing a reverse mortgage. Relax and continue reading.
Is Refinancing A Reverse Mortgage Possible?
Of course! Though it suits only in some situations, refinancing a reverse mortgage is possible. It applies if you want to:
• Increase your monthly income
• Add your spouse’s name, and it’s the only option left for you to use
When Does It Not Make Sense To Refinance A Reverse Mortgage?
Refinancing a reverse mortgage is only an ideal decision in certain situations. It does not fit everyone. Just like in financing a traditional mortgage, weighing the benefits and the cost involved is a must. According to Theo Espinosa, a mortgage specialist in San Jose, California who works with The Espinosa Group, refinancing a reverse mortgage does not make sense in most cases. The following are instances that do not make sense to refinance a mortgage:
1. You should refrain from refinancing a reverse mortgage if what you will gain will be less than what you spend. Expenses like closing costs, Mortgage Insurance Premiums (MIP) and other fees come in place when you get to secure a loan. All these costs have got to get paid every time you refinance a mortgage. You may have to spend a lot of money depending on the following factors:
• Your home equity
• Your home’s appraised value
• Your financial history
• The chosen loan product
Calculate all your costs and what you get to gain before deciding on refinancing a reverse mortgage.
The 5-5 Reverse Mortgage Refinancing Rule
The National Reverse Mortgage Lenders Association (NRMLA) came up with the following simple rules to help homeowners make the right decision on refinancing a reverse mortgage:
I. The total costs of the loan should be five times less than the increased reverse mortgage loan.
II. The additional money to get refinanced should be above 5%.
2. Temporary or short stay in your home.
Financing a reverse mortgage will only make sense for you if you are to stay in your home forever. When you have plans to join and seek the services of a retirement community, then refinancing a reverse mortgage will be a bad idea. Similarly, if your health issues are likely to push you into a care facility, refinancing a reverse mortgage will cost more than you will get to gain.
3. Depreciating value of your home.
If your homes decrease in value, it is a no-brainer; you will get to access less money.
4. Within 18 months since you got your reverse mortgage.
It’s prohibited to refinance a reverse mortgage within 18 months since it got given. This is according to the NRMLA’s guidelines.
When Does Refinancing A Reverse Mortgage Make Sense?
Though not all homeowners qualify, the following situations are fit to consider refinancing a reverse mortgage:
1. Add your partner as a borrower
If the last living spouse dies or leaves the house, the reverse mortgage becomes due. If by the time you took the loan your partner was below 65 years of age, then his/her name is never included on the loan. In case you received the reverse mortgage before marrying your partner, or he/she is not a listed borrower due to reasons, you should refinance the loan to ensure that your spouse will have a place to stay.
2. Loan pay off by your heirs
If your heirs would like to retain the ownership of the house, they just have to finish paying the loan by refinancing a reverse mortgage if they don’t have money.
3. In need of more money
With time, many properties gain value. You can decide to refinance your reverse mortgage if your home has increased its worth in a bid to draw enjoy more monthly payments.
4. Low-Interest rates
Market conditions lead to mortgage rate fluctuations. It becomes reasonable to consider a refinancing of your reverse mortgage when interest rates drop.
5. Fixed interest rate
In rising economic conditions, interest rates are said to go high. It is a smart move to consider refinancing a reverse mortgage at a fixed rate.
The above insight will help you in making the right decision while refinancing a reserve mortgage. It is advisable to choose refinancing a reverse mortgage when the benefits outweigh the costs involved. Contact us for more information.