Can a Reverse Mortgage Be Refinanced?
The Federal Housing Administration (FHA) has been offering reverse mortgages since 1987. A reverse mortgage allows senior home owners to withdraw the equity from their homes without having to repay the loan while they remain in their homes. Once you are in a reverse mortgage, lower interest rates or the availability of a higher loan amount might tempt you to consider refinancing. You have two options to refinance a reverse mortgage.
Other People Are Reading
-
Refinance With Another Reverse Mortgage
-
Reverse mortgages have been around since 1989 but only since 2000 have you been able to refinance one reverse mortgage with another. The American Homeownership and Economic Opportunity Act of 2000 authorized the FHA to refinance existing reverse mortgages. As a condition of the refinance, lenders must provide borrowers with an anti-churning disclosure, which is information about the costs of refinancing that helps prevent lenders from talking borrowers into refinanced loans that benefit the lenders with fees and harm the borrowers with high fees on refinanced loans they don't need.
Refinance With a Traditional Mortgage
-
Even before 2000, if you had a reverse mortgage, you could refinance it with a traditional mortgage. This is an uncommon occurrence, however, because the underlying purpose of the reverse mortgage -- to take out equity without having to immediately begin repayment -- is completely lost by a traditional refinance. Additionally, many seniors cannot qualify for a traditional refinance: they lack sufficient income in many cases and sufficient credit in others. However, if you come into some unexpected money or your children want to provide a mortgage for you in exchange for inheriting the home with only their own lien when you die, a traditional mortgage may make sense.
-
Why Consider a Refinance?
-
Before 2008, the maximum limit on a reverse mortgage was based upon the lesser of the home value and the median regional home price. In some parts of the country that limit was under $200,000. In late 2008 a cap of $417,000 was applied nationally. In 2009, as part of the American Recovery and Reinvestment Act, the nationwide limit was raised to $625,500. For home owners of high-value homes, especially those who initially took out a reverse mortgage before 2008, the new higher loan limits will result in reverse mortgage loans well above the limits for which they were approved. For those who took out fixed-rate reverse mortgages prior to 2008, interest rates post-2008 may provide another reason to refinance. (References 3-4)
Avoid a Refinance With a Line of Credit
-
There are several options for reverse mortgage payments. One of these -- a line of credit -- encompasses two features that may make refinancing unnecessary, even when loan limits are raised and interest rates go down. A line of credit reverse mortgage is based on an adjustable interest rate, and the unused portion of the line increases by one-half of one percent above the interest rate you pay on the used portion. So long as you do not immediately use most of your available line of credit, it will keep growing noticeably over time, no matter what the lending limits were when you took out the loan.
-
References
Resources
- Photo Credit senior reader 1 image by Pierrette Guertin from Fotolia.com
