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Can A Reverse Mortgage Be Refinanced

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Single Purpose Reverse Mortgages For Low

Can A Reverse Mortgage Be Refinanced, aka HECM to HECM

For low-income seniors who may need help paying property taxes, making home repairs, or with any specific and critical expense, a single-purpose reverse mortgage may be available from state and local organizations. As the name suggests, these reverse mortgages are granted to borrowers for a single purpose and are often used to cover expenses that, if left unpaid, could put the homeowner at risk of losing their home or living in an unfit environment.

Single-purpose reverse mortgages are not structured, regulated, or insured by the FHA. Rather, the terms of these loans are determined by the organization or institution that offers them. Nonprofits, credit unions, and state government programs are the most common lenders of single-purpose reverses, but they can be offered by an array of different types of entities and offer a lower-cost alternative to an HECM reverse.

Costs Associated with Single-Purpose Reverse Mortgages

Although Social Security and Medicare eligibility is not affected by a reverse mortgage loan, needs-based government programs like Medicaid and Supplemental Security Income may be affected by the new asset that a loan represents, even in the case of single-purpose loans for needy seniors. Like an HECM, single-purpose reverse mortgages are not due and payable until the end of the loans term, and most people who require a single-purpose loan repay it by selling their home when their contract reaches maturity.

Locating a Single-Purpose Reverse Mortgage

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When To Consider A Refinance Of Your Reverse Mortgage

  • Your home value has increased considerably.
  • You originally obtained your loan when the lending limit was less than the 2021 Home Equity Conversion Mortgage limit of $822,375 and your value is at or higher than the HUD limit, especially the limit that was in effect at the time you closed your loan.
  • You are adding a younger spouse now who was not age 62 at the time you did the loan, and they were also not an eligible non-borrowing spouse to protect them from having to sell the home upon your death.
  • To benefit substantially from a lower interest rate or This is a tough one and we will go into it further, most rate refinances alone are not beneficial.
  • Refinance into a larger proprietary or jumbo reverse mortgage plan.You find yourself in a position where you need additional funds at this time or believe you will in the near or foreseeable future.
  • Is There A Prepayment Penalty On Reverse Mortgages

    The answer is: There are no prepayment penalties on reverse mortgages. In most cases, theres a contract of up to ten years that allows you and other homeowners to pay off the loan balance at any time without penalty. This also means that your home equity can increase over time as property values change in your neighborhood or market conditions improve.

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    Would You Benefit From One

    A reverse mortgage might sound a lot like a home equity loan or line of credit. Indeed, similar to one of these loans, a reverse mortgage can provide a lump sum or a line of credit that you can access as needed based on how much of your home youve paid off and your homes market value. But unlike a home equity loan or line of credit, you dont need to have an income or good credit to qualify, and you wont make any loan payments while you occupy the home as your primary residence.

    A reverse mortgage is the only way to access home equity without selling the home for seniors who dont want the responsibility of making a monthly loan payment or who cant qualify for a home equity loan or refinance because of limited cash flow or poor credit.

    If you dont qualify for any of these loans, what options remain for using home equity to fund your retirement? You could sell and downsize, or you could sell your home to your children or grandchildren to keep it in the family, perhaps even becoming their renter if you want to continue living in the home.

    What To Do If Youre Facing Reverse Mortgage Problems

    Can You Refinance a Reverse Mortgage?

    From not fully understanding how a reverse mortgage works to facing unexpected changes or needs, borrowers often have to figure out how to get out of a reverse mortgage. Consider these steps should you run into reverse mortgage problems.

    Seek help from a HUD-approved counselor

    Borrowers with concerns about their reverse mortgage loan should speak with their reverse mortgage counselor, Irwin said. In addition to discussing the loan repayment process, the counselor can also run a benefits checkup to determine if the borrower is eligible for federal or state resources, such as SNAP or other government programs.

    Review your long-term plans

    Know what goals you want to prioritize, such as whether you wish to remain in the home long term or pass the property to your heirs.

    Consider the costs

    Keep in mind, any course of action you take will come at a cost. Refinancing your existing loan with either a conventional mortgage or a new reverse mortgage will entail closing costs.

    Communicate with your lender

    At the first sign of trouble, reach out to your lender to discuss the reverse mortgage problems you are facing.

    Make partial payments

    Even if you cant afford to repay your reverse mortgage in a lump sum, you might consider making partial prepayments to reduce the amount owed later on. Most reverse mortgages allow partial prepayments without charging a penalty, but be sure to talk to your loan servicer about your prepayment options and confirm how those payments will be applied.

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    What Are The Requirements For Refinancing A Reverse Mortgage

    The basic requirements to qualify for a reverse mortgage refinance are similar to the requirements on an original reverse mortgage transaction.

    These include:

    • The prospective borrower must be at least 62 years of age or older.
    • The home at the center of the reverse mortgage must be the borrowers primary residence.
    • There must be enough equity in the home to qualify for a reverse mortgage.
    • The borrower has to demonstrate his or her ability to keep up with ongoing financial obligations related to the home, including paying property taxes, homeowners insurance and homeowners association fees on time.
    • The home must be maintained to FHA standards as long as the borrower lives in it.
    • The property itself must also meet FHA standards at the time of application.

    Reverse Mortgage Loan Repayment Rules

    Although reverse mortgages are indeed loans, unlike a traditional “forward” mortgage loan, your parents aren’t required to pay it back as long as their home is their primary residence. Once the home is sold, your parents move out, or pass away and there is no surviving spouse or co-signer, repayment in full is necessary.

    Should the home be left to the homeowner’s children, the heirs are responsible for the full loan balance. This is regardless of whether or not the heirs intend to occupy the property.

    An heir can choose to keep the property, sell it, or hand the keys over to the lender. This decision is usually based on the equity position left in the home.

    If you choose to keep the home, you need to pay off the loan.

    Fortunately, you should never owe more than the home is worth. In fact, you shouldn’t owe more than 95% of the home’s appraised value. This holds true even if the loan balance exceeds the home’s appraised value.

    If the home’s value exceeds the balance owed, you can keep the proceeds after selling the home.

    Selling a home with a reverse mortgage works like selling any other home. The same rules apply. Consulting a real estate professional can be helpful as they can advise you on how to maximize the value received when selling the home.

    On the other hand, if you don’t wish to keep the home and the balance exceeds the home’s value, you may sign a deed-in-lieu of foreclosure. This route gives the property back to the lender.

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    Interest Rates Have Gone Down

    Even though youre not making payments on a reverse mortgage, the interest rate still means a great deal. Your lender continually charges interest on a reverse mortgage, adding those costs to your loan balance and reducing the amount of cash you can access.

    So, like a typical mortgage, refinancing can be a good idea if interest rates have dropped significantly from when you took out the reverse mortgage. Lower interest rates mean youll accrue less interest that you or your family will need to pay back when the reverse mortgage comes due.

    Reverse Mortgage Refinance Eligibility

    Can I Refinance a Reverse Mortgage

    Both the HUD program and the private programs require you to have a significant equity position in your home to do a refinance of a reverse mortgage.

    HUD generally requires borrowers to pass a 5-times benefit rule to qualify to refinance a reverse mortgage with a new reverse mortgage. This rule exists for both HUD and for proprietary or jumbo loans. However, some exceptions may be made.

    The rule is explained below, and it protects borrowers from equity stripping, which are constant refinances that do not benefit the borrower but accrue fees. To meet the test, you must receive at least 10%of the new principal limit in additional reverse mortgage proceeds for the HUD HECM to HECM refinance.

    This would mean that if your Principal Limit is $300,000, you would have to receive at least $30,000 in new proceeds from the refinance loan in addition to the new proceeds being at least 5 times the costs of the loan.

    Preferably your interest rate or margin should be improved, but in a rising interest rate market, this is not necessary.

    Exceptions may be made when the loan itself protects or significantly benefits the borrowers.

    Such a case would be adding a non-borrowing spouse protection to your loan.

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    Finance Of America Reverse

    Finance of Americas reverse mortgage division, Finance of America Reverse, was a leader in reverse mortgage closings throughout 2019. FAR has become the third-largest lender of HECM reverse mortgages by volume, with 8.4 percent market share this June and over 1,300 reverse mortgages closed this year.

    Currently a member in good standing with the National Reverse Mortgage Lenders Association, FAR provides reverse mortgages and a broad range of other financial instruments in every state. While Finance of America Reverse does not advertise any sort of price matching or cost guarantees to consumers and currently cannot offer a completely remote application process, their history as a comprehensive lending institution and FARs ample consumer resources have helped it retain its position as a top-three reverse mortgage lender through 2019.

    Details of Finance of America Reverses HECM Lending
    Cost Guarantees, Rebates, or Discounts Offered
    • This lender may charge servicing fees
    • Interest-free set-aside accounts may be offered to cover servicing fee costs
    Other Benefits of This Lender
    • Available nationwide
    Currently available in all states

    Finance of America Reverse Overview

    Price Guarantees, Rebates, or Discounts Offered

    HECM Repayment Options

    Products available from Finance of America include:

    • HECM reverse mortgages
    • Student loans

    Online Application and Customer Service Technologies

    Locations and Availability

    Is A Reverse Mortgage Refinance Right For You

    There are many instances when borrowers consider a reverse mortgage refinance with a new reverse mortgage. Refinancing existing loans does make sense at times, and sometimes it does not.

    Borrower should only consider refinancing their loan when it makes sense for their individual circumstances. Some homeowners will find that they may meet some or all of the conditions listed below, but dont need additional funds.

    In those cases, a refinance is not warranted. For them, even though they qualify for additional funds, it might only mean that the borrowers would incur additional unnecessary costs.

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    Apply With Your Lender Of Choice

    The refinance process begins with an application. You dont need to refinance with your current lender you can submit an application through your lender of choice. Your lender will usually ask you for documentation that proves your income. This can include statements detailing your Social Security benefits, tax returns and any statements from your retirement accounts.

    When Does A Reverse Mortgage Loan Mature

    can i refinance a reverse mortgage?

    With a regular mortgage, a borrower pays off the loan, month by month, and gains equity in the home with each payment. In a reverse mortgage, however, a borrower converts the equity in their home into cash. The proceeds from a reverse mortgage act as extra income for seniors who may need to pay for medical expenses or if they want to delay taking out Social Security benefits. No other payments need to be made besides property taxes, maintenance fees, and insurance payments.

    Wondering how a reverse mortgage works when repayment is due?

    A reverse mortgage or HECM loan will mature and become payable if the borrower fails to keep up with property taxes, repairs, and maintenance. If the borrower permanently moves out of the home or passes away, the loan will also be due. When the loan is considered payable due to the borrowers death, heirs will need to contact the lender to decide their course of action in regards to the estate.

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    Fees Eating Into The Benefit

    Fees for a reverse mortgage are typically higher than for a traditional mortgage, and in order to refinance, you will need to pay closing costs, a mortgage insurance premium, and usually a loan origination fee. And keep in mind, youll still be on the hook for regular homeowner expenses, like property taxes, homeowners association fees and home repairs. Run the numbers to make sure the refinance is well worth the cost of doing so.

    Us News: How And Why To Refinance A Reverse Mortgage

    Refinancing an existing reverse mortgage into a new and potentially better one could be an option that works for some senior homeowners, but its not a universally good solution for everyone. This is according to a new article at U.S. News & World Report by personal finance and business contributor Rebecca Lake.

    Not only would a borrower have to be aware of the potential benefits a reverse mortgage refinancing could bring to them, but it also has to make sense for the lender, as well. This is according to Chris Downey, president of Harbor Mortgage Solutions based in Braintree, Mass. that serves the larger Boston metropolitan area.

    There would need to be a very clear, defined benefit for a lender to justify refinancing a customers reverse mortgage, Downey tells U.S. News.

    On the borrower side, one of the tools that can help them determine if refinancing is right for them is the 5-5 rule, first established by the National Reverse Mortgage Lenders Association . It relies upon two key principles when refinancing a reverse mortgage.

    The increase in the principal amount must be equal to or more than five times the loan closing costs, and loan proceeds must be equal to or more than 5 percent of the amount being refinanced, describes U.S. News.

    Both spouses should be listed as borrowers on the reverse mortgage to ensure that a surviving spouse can continue to live in the home, U.S. News writes.

    Read the full article at U.S. News and World Report for more.

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    Working Toward A Rule Of Thumb

    Most reverse refinances are what is referred to as HECM to HECM. The US Department of Housing and Urban Development defines this as:

    A HECM refinance case is the refinance of an existing HECM with a new HECM for the same borrower and same property with different loan specifications.

    Although there is no popular rule of thumb, we can look at the guidance that HUD provides and draw some conclusions about when it might make financial sense for a borrower to refinance. As you probably know, counseling is required for first time HECM borrowers. It is required to refinance as well, though it is waived if the following is true:

    The increase in the mortgagors principal limit exceeds the total cost of the refinancing by an amount equal to five times the cost of the transaction.

    This is sometimes referred to as the refinance benefit factor, and the idea is fairly straightforward if you stand to gain five times the financial benefit from refinancing over the closing costs that you must pay, it begins to make sense to consider it.

    Alternatives To A Reverse Mortgage

    Refinance Your Reverse Mortgage

    If youre not sold on taking out a reverse mortgage, you have options. In fact, if youre not yet 62 , a home equity loan or HELOC is likely a better option.

    Both of these loans allow you to borrow against the equity in your home, although lenders limit the amount to 80 percent to 85 percent of your homes value, and with a home equity loan, youll have to make monthly payments. With a HELOC, payments are required once the draw period on the line of credit expires.

    The closing costs and interest rates for home equity loans and HELOCs also tend to be significantly lower than what youll find with a reverse mortgage.

    Aside from a home equity loan, you could also consider:

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    How Much Does A Reverse Mortgage Cost

    The closing costs for a reverse mortgage arent cheap, but the majority of HECM mortgages allow homeowners to roll the costs into the loan so you dont have to shell out the money upfront. Doing this, however, reduces the amount of funds available to you through the loan.

    Heres a breakdown of HECM fees and charges, according to HUD:

    • Mortgage insurance premiums There is a 2 percent initial MIP at closing, as well as an annual MIP equal to 0.5 percent of the outstanding loan balance. The MIP can be financed into the loan.
    • Origination fee To process your HECM loan, lenders charge the greater of $2,500 or 2 percent of the first $200,000 of your homes value, plus 1 percent of the amount over $200,000. The fee is capped at $6,000.
    • Servicing fees Lenders can charge a monthly fee to maintain and monitor your HECM for the life of the loan. Monthly servicing fees cannot exceed $30 for loans with a fixed rate or an annually adjusting rate, or $35 if the rate adjusts monthly.
    • Third-party fees Third parties may charge their own fees, as well, such as for the appraisal and home inspection, a credit check, title search and title insurance, or a recording fee.

    Keep in mind that the interest rate for reverse mortgages tends to be higher, which can also add to your costs. Rates can vary depending on the lender, your credit score and other factors.

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