Second Reverse Mortgage Procedures
Unlike a conventional mortgage, a reverse mortgage has a balance that increases over time. As such, the homeowner can't usually take out a second reverse mortgage. Instead, the homeowner can refinance his first reverse mortgage. Refinancing a reverse mortgage only benefits the homeowner in certain situations.
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Lien
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With a reverse mortgage, a homeowner who is at least 62 years of age can convert his equity into cash. He doesn't have to pay back the loan amount to the lender, but the lender will take his home when he dies, moves out or decides to sell his home. Because the lender uses the sale proceeds to pay off the homeowner's debt, the reverse mortgage lender has to have the first lien on the property. This means that the lender has a claim on the property that is superior to any other claim.
Second Loan
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It is rare for a homeowner to take out another loan against his property if he already has a reverse mortgage. Commercial lenders usually don't want to extend such loans because the homeowner can use up all his home equity through his reverse mortgage. If the homeowner defaults on his loans, the reverse-mortgage lender can take all the sale proceeds of the property in a foreclosure, leaving nothing for the second lender. Usually, the only way the homeowner can get another loan against the property is to get it from a friend or a relative.
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Refinancing
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If the homeowner wants to get more money out of his home equity, he can talk to his reverse-mortgage lender about refinancing. Depending on any changes in interest rates, home value and reverse-mortgage limits, he may be able to get an increase in his loan limit. Because the homeowner also is older than when he first took out the reverse mortgage, he may also qualify for higher payments.
Consideration
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When the homeowner contacts his lender about refinancing, he needs to talk about the amount of the increase in loan value and any refinancing costs. By law, the lender has to provide this information in a counseling session if the increase in loan limit is less than five times the refinancing costs. In some cases, the refinancing costs can eat up any extra benefits from higher loan limits. If the homeowner decides to go ahead with the refinancing, he and the lender can complete the paperwork and increase the loan limit.
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