Refinancing an existing reverse mortgage into a new and potentially better one could be an option that works for some senior homeowners, but it’s 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 customer’s 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 (NRMLA). 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.
Homeowners must also meet a seasoning requirement, which only allows those who have had their original reverse mortgage for 18 months or more to enter into the refinancing process, and the borrower must also qualify for a new reverse mortgage loan under the rules of the lender. “The good news is that the criteria used to qualify borrowers for a reverse mortgage may be the same when refinancing,” U.S. News writes.
When answering whether or not a borrower should consider entering into the refinancing process, it can be a viable option for those seeking to accomplish goals inherent to specific financial situations. This is according to Vivian Dye, reverse mortgage consultant at GuardHill Financial Corp based in New York City.
“There are many reasons it may be beneficial to refinance your existing reverse mortgage,” she tells U.S. News. “It may have been several years since you closed, and rates may have lowered, or it makes more sense to switch from an adjustable rate to a fixed rate. Perhaps your home has appreciated in value, and you have additional equity you’d like to tap into; refinancing can increase the amount of money you’re eligible to receive from the loan.”
Refinancing may also be a worthy option if the borrower seeks to add their spouse to a new reverse mortgage, if that spouse was not included in the initial transaction, side-stepping a potential issue if the primary borrower dies before the spouse, and if that survivor wishes to stay in the home.
“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.
There are also benefits and drawbacks to using the refinancing process to access more of your home’s equity, a drawback of which could be a larger loan balance that must be repaid later. Also discussed are refinancing alternatives, including modifying the payment terms of the reverse mortgage if that option is available to the borrower.
Read the full article at U.S. News and World Report for more.