Are you already enjoying the benefits of a reverse mortgage loan? Maybe you took out your reverse mortgage years ago and you’re interested in the possibility of refinancing. There’s a good chance a lot has changed in your life, and in the mortgage industry, since you closed on your loan. This might be the perfect time to explore your options and see if a refinance is the right move for you!
Let’s start with a refresher: what is refinancing? Refinancing a loan of any kind refers to the process of obtaining a new loan to replace an existing one, often with better terms and conditions. When you refinance a loan, you essentially pay off the existing loan with the new loan proceeds. The new loan may come from the same lender or a different one – after all, not all lenders are created equally.
Before delving into reasons why people choose to refinance their reverse mortgage, it’s important to ensure you have a solid understanding of reverse mortgages. Again, it may have been some time since you secured your current loan!
A reverse mortgage is a loan available to older homeowners that allows you to convert a portion of your home’s equity into income tax-free funds.1 Unlike traditional mortgages, reverse mortgages do not require monthly repayments so long as you continue to maintain the home and pay your property taxes and insurance. Instead, the loan is repaid upon a maturity event, such as when you leave the home permanently.
Reverse mortgages can allow you to harness the power of your home and bring greater peace of mind to your golden years, allowing you to age in place safely and comfortably in the home you love.
Why Refinance a Reverse Mortgage?
Refinancing a reverse mortgage can offer several benefits, depending on your specific needs and circumstances. Here are some common reasons you might consider refinancing your existing reverse mortgage:
- Increased Equity Access
As your property’s value appreciates over time, you may want to access a larger portion of your home’s equity. By refinancing, you can increase your loan amount, giving you access to additional funds to meet your current or future financial goals.
- Improved Loan Options
The reverse mortgage landscape evolves over time, with new loan products and features becoming available. Refinancing can present an opportunity for you to switch to a different reverse mortgage product that better aligns with your current needs. For example, you could purchase a new home better suited to your retirement lifestyle with a Reverse for Purchase loan. Or, access more money with Longbridge Platinum, a proprietary jumbo reverse mortgage that offers more cash than a standard reverse.
- Change in Personal Circumstances
Life is full of surprises, and sometimes unexpected events can prompt the need for refinancing. Whether it’s a desire to relocate, a change in financial priorities, or a need for a different loan structure, refinancing provides homeowners with the flexibility to adapt to their evolving circumstances.
- Increased Borrowing Limits
As with home values appreciating over time, lending limits for the different reverse mortgage products also have increased over time. You might consider refinancing to access a larger portion of your home equity, meaning more cash in your pocket. For example, the lending limit for government-insured Home Equity Conversion Mortgage (HECM) loans, commonly referred to as reverse mortgage loans, is capped by the FHA.2 For proprietary, non-FHA products like Longbridge Platinum, the lending limit exceeds what is set by the FHA.
- Rate or Loan Term Changes
Some reverse mortgages offer adjustable interest rates, which can be riskier if rates rise substantially. Refinancing to a fixed-rate reverse mortgage can provide stability and peace of mind. On the other hand, you may decide to refinance if your health, marital status, or your living situation changes as this can help align your loan terms with your current circumstances.
Considerations When Refinancing
As with any financial decision, refinancing a reverse mortgage requires careful consideration of various factors. Here are some important points to keep in mind as you make your decision:
- Research and Compare Lenders
Just as with the initial reverse mortgage, it’s essential to research and compare different lenders to find the best terms and rates for your refinanced loan.
- Costs and Fees
Refinancing a reverse mortgage incurs costs, including closing costs, origination fees, and other associated charges. It’s essential to evaluate these expenses against the potential benefits of refinancing to ensure that the overall financial gain outweighs the costs incurred.
- Loan Comparison
When considering refinancing, you should compare various loan options and terms from different lenders. This will help you secure the most advantageous terms that suit your needs and objectives.
- Counseling and Professional Advice
Seeking guidance from a reverse mortgage counselor or a financial advisor can provide invaluable insights and help in making an informed decision. These professionals can help assess the potential impact of refinancing and provide guidance on whether it aligns with your overall financial plan.
The Refinancing Process
After weighing all your options, you may decide that refinancing is the right call. So, what does the reverse mortgage refinancing process look like? Thankfully, the steps are essentially the same as when you took out the initial loan. Here’s a quick six-step refresher for you:
- Eligibility Check: Lenders will assess your eligibility based on factors such as age, home value, outstanding loan balance, and remaining home equity.
- Financial Assessment & Counseling: Like the original reverse mortgage process, lenders will evaluate your ability to cover property taxes, homeowners insurance, and other ongoing obligations. For added confidence and assurance, to ensure that you’ve had all of your questions answered by an independent third party, you’ll be required to speak with a government-approved counselor.
- Loan Application: Submit a loan application with your chosen lender. Be prepared to provide documentation related to your identity, income, property, and any other relevant financial details.
- Appraisal: A new home appraisal will be conducted to determine the current market value of the property. This appraisal influences the maximum loan amount you can qualify for.
- Underwriting and Approval: The lender will review your application, conduct underwriting, and approve the refinancing if you meet all the requirements.
- Loan Closing & Funding: You’ll attend a closing meeting to sign the necessary documents and finalize the new reverse mortgage. After that, the loan funds and you are on your way to an even better retirement.
Refinancing an existing reverse mortgage can be a strategic move for homeowners looking to optimize their financial situation during retirement. Whether it’s securing more favorable interest rates, accessing additional funds, or adapting to changing circumstances, refinancing can offer you flexibility and potential savings. However, it’s essential to carefully evaluate the costs, eligibility requirements, and potential benefits associated with refinancing. By seeking expert advice and conducting thorough research, you can make an informed decision and unlock greater financial freedom.
Longbridge Financial is a full-service lender, with a variety of reverse mortgage products that can help you live the retirement you imagine. Our team can help you evaluate whether your current loan can help you reach your goals, or if another loan would make more sense. And remember, we always offer special rates to our existing customers. Contact our team today to learn more!