Reverse Mortgages

Can I Refinance My Reverse Mortgage?

Yes, you can refinance your reverse mortgage, if you’re qualified, and your new loan meets the guidelines.

Some good reasons to refinance are:

  • Borrow more money
  • Get a lower rate
  • Add your spouse as a borrower
  • Remove your spouse as a borrower (e.g., after divorce)

You can’t have two reverse mortgages at the same time, but your first reverse mortgage isn’t the only one you can ever get in your entire lifetime. You can get a second one if you refinance, or if you sold your home, paid off your reverse mortgage, and want to get a new one for another home.

Can I refinance my reverse mortgage? Federal guidelines to refinance a reverse mortgage

Regardless of your reasons to refinance, there are some rules you should know about:

The federal government has some rules specifically for HECM refinances.

A HECM is a Home Equity Conversion Mortgage, a type of reverse mortgage that’s insured by the Federal Housing Administration (FHA). Most reverse mortgages are HECMs, according to the federal Consumer Finance Protection Bureau (CFPB).

The rules say that if you want to refinance a HECM, the lender must disclose:

  • The total cost of refinancing
  • The increase in your principal loan limit

The increase is the additional amount you could borrow if you refinance your reverse mortgage.

Your principal loan limit might increase if your home becomes more valuable or the FHA raises its maximum loan limits. The FHA limit for HECMs in 2018 is $679,650, according to a December 7, 2018, Mortgagee Letter from the U.S. Department of Housing and Urban Development.

The CFPB website explains that a HECM refinance allows one HECM loan to be converted into another HECM loan.

“The typical reason for refinancing is to get a lower interest rate, if one is available, or to borrow more cash if the home value has gone up,” the CFPB says.

It’s also possible to refinance a non-HECM into a HECM.

Lender guidelines to refinance a reverse mortgage

The National Reverse Mortgage Lenders Association (NRMLA), a trade group for mortgage lenders, also has some rules that reverse mortgage lenders generally follow.

These rules say that if you refinance a HECM into another HECM:

  • You have to wait at least 18 months after you got the first HECM
  • The increase in your principal loan limit must be at least five times your total closing costs

If your refinance doesn’t meet these requirements, you likely won’t be able to do it. Other options might be a home purchase mortgage or home equity line of credit.

Reverse mortgages have pros and cons so you should do some research before you get one or refinance one that you already have. Talk to a lender about your goals. Ask how much you’ll be able to borrow and how much your closing costs will be.

Reverse mortgage lenders:

How heirs can refinance a reverse mortgage

If you inherit a home with a reverse mortgage and you want to keep the home, you’ll need to refinance into a new loan in your name. Your new loan might be a reverse mortgage if you can qualify for one or it might be a conventional loan.

  • If you can’t refinance the reverse mortgage, you’ll have to find another way to pay it off, either by using other assets or selling the home.
  • In cases where the loan balance is more than the home’s worth, you’ll only have to pay 95% of the home’s appraised value.
  • If there’s no equity in the home, you might want to give the home to the lender rather than sell it. This option is called a deed-in-lieu.

Anyone who is living in the home when it’s sold or deeded will have to move out when the ownership is transferred. Some special rules protect the borrower’s spouse in this situation. Individual cases can vary so always make sure to do your homework before deciding whether this is right for you.

Ready to refinance your reverse mortgage? Check out lenders’ maximum loan amounts and fees here.