Refinancing a Reverse Mortgage

If you take out a reverse mortgage, you may be able to refinance your reverse mortgage to increase the amount of your loan. There are two factors that could allow you to do this; either the value of your home must increase significantly, or interest rates must drop by a significant percentage.

If either of these events occurs, then your maximum loan limit can be recalculated and you may be eligible for additional funds beyond what you originally received. You may be able to take an additional lump sum payment, or increase your monthly check if you opted for a monthly dividend installment.

There are fees involved in refinancing a reverse mortgage. However, HUD has reduced the fees for refinancing under its HECM reverse mortgage program. HUD requires a two percent mortgage insurance premium on the appraised home value.

When refinancing, the borrower does not have to pay another two percent. The borrower only has to pay the fee on the difference between what the home was worth when the original loan was issued, and the new value. For example, if a home was first appraised at $100,000 at the time of the original HECM loan, and the new value is $150,000, the two percent insurance premium will be calculated only on the $50,000 difference, instead of the full $150,000 value of the home.

All other closing costs and servicing charges must still be paid again for the refinancing, however. Refinancing a reverse mortgage to obtain additional funds is a decision that should be weighed carefully. Determine the amount of benefit you would gain, and compare that against the costs involved before making a decision to go forth an refinance a reverse mortgage.