Can Reverse Mortgages Be Refinanced?
The short answer is yes, a reverse mortgage can be refinanced. However, just because it can be refinanced, doesn’t mean that it’s the right decision for your clients. In this article, we’ll talk about refinancing into a traditional mortgage, refinancing into another reverse mortgage, and why a borrower would, or wouldn’t, want to refinance. When refinancing into another reverse mortgage, the client(s) must show a net tangible benefit such as adding a spouse, gaining access to additional funds, or moving from an an adjustable rate to a fixed rate reverse mortgage. Refinancing to a Traditional Mortgage When a client refinances a reverse mortgage, they are obtaining a new loan to pay off the old one, just like they might do when refinancing a traditional mortgage. Similarly, when refinancing a reverse into a traditional mortgage, the new loan would be used to pay off the existing loan. A reverse mortgage can be repaid or refinanced into a traditional mortgage with no prepayment penalty, at any time. Clients should consider their circumstances and weigh the pros and cons of refinancing, before deciding to refinance their reverse. Refinancing to Another Reverse Mortgage Clients may be interested in refinancing to another reverse mortgage when their home value, interest rates, or other needs have changed. When refinancing to another reverse mortgage, the client(s) must show that the refinance will result in a bona-fide benefit to the borrower(s). All reverse products have set standards to ensure that the refinance is a benefit to the borrower(s). This can include a required percentage increase of Principal Limit vs. closing costs, and the increased amount of available funds. Your clients should always speak with their attorney and/or financial advisor first, to determine if a reverse to reverse refinance is right for them. Why Refinance a Reverse Mortgage? There are several reasons why someone might consider refinancing a reverse mortgage, including: Why Not Refinance a Reverse Mortgage? Although refinancing a reverse mortgage is possible and there are many reasons to refinance, it’s important to keep in mind that refinancing is not always a good idea. Your clients may not want to refinance if any of these apply to their situation: Summary To summarize, yes, a reverse mortgage can be refinanced and when your client’s situation permits, it can be a benefit to them. However, refinancing is not always a good idea, nor is it always possible. Clients should consider their financial situation, how much of their home equity has been used, and should weigh the pros and cons. They should always speak with their attorney and/or financial advisor first, to determine if a reverse to reverse refinance is right for them. Lastly, just because a refinance does or doesn’t make sense now, doesn’t mean it will or won’t in the future. Please also note that if your client is considering a reverse mortgage refinance and it was not their idea, they should take precaution to ensure it is not a scam. A refinance should always be a benefit to the client, not simply a benefit to a lender, contractor, or relative.