If you previously met the criteria for a reverse mortgage loans, the eligibility requirements for a refinancing reverse mortgage should be comparable.
- You must be 62 years of age or older.
- Make the house your primary residence.
- have sufficient equity in your home.
Demonstrate your financial capacity to meet all ongoing loan obligations, including homeowners insurance, property taxes, and, if applicable, homeowners association dues.
Arguments for Refinancing
But just because you have the option to refinance does not mean you should. Refinancing must have a clear benefit. The first two concerns boosting your financial situation, while the third concerns your mental well-being. However, there are still three situations where refinancing can be advantageous.
- The value of your home has increased. In addition to your age and the current interest rate, the value of your home plays a vital role in determining the amount of your loan (principal limit). If your equity has increased, you might be able to withdraw more money by refinancing into a new reverse mortgage loan as a reverse mortgage loan is a mechanism for turning home equity into tax-free cash.
Something to think about For 2022, the maximum house value for a reverse mortgage that the government will guarantee is $970,800. Even if your home's appraised value was higher—say let's it was $900,000—the maximum property value for your refinance would still be $822,375.
- Borrowing is now less expensive. If interest rates have fallen since you first got your reverse mortgage, you might be eligible for a refinance. Lower rates can increase the initial payoff, and the lower the rate of interest accrual, the less interest you (or your heirs) will have to pay when the loan comes due.
Since you want to know whether the recently refinanced amount would significantly enhance your situation, the estimate is essential. According to guidelines established by the National Reverse Mortgage Lenders Association, the increase in principle must be at least five times the loan's closing costs. Furthermore, the new loan's proceeds must match or exceed 5% of the amount being refinanced. In other words, after paying for closing costs and paying off the initial reverse mortgage, the balance should be at least 5% of the total amount you refinanced. These two conditions for refinancing reverse mortgages are known as the “5-5 rule.”
- Instill a sense of security in your partner. Refinancing might be a smart move if your spouse was left out of the reverse mortgage at first and you want to include them in the loan. That might happen for a number of reasons. Maybe your spouse wasn't 62 when you got your reverse mortgage at first. Perhaps you were by yourself at the time. The effects of only having one spouse cosign for the loan are more important than the reasons themselves. If they are not listed on the reverse mortgage loan papers, the widow or widower may be required to repay the loan in full, which may require selling the home. If both spouses are mentioned, the surviving spouse may remain in the home. Similar to this, if one spouse had to enter a nursing home (be absent from the home for 12 months or more), the other could continue to live in the home and receive loan payments as long as they complied with the reverse mortgage's ongoing requirements, which include paying for homeowners insurance, property taxes, and home maintenance costs.
Refinancing a reverse mortgage should not be undertaken quickly. The “seasoning” regulation, which many lenders use in practise, limits borrowers' possibilities for refinancing to those who have had their initial reverse mortgage for a certain period of time (usually 18 months). To find out if a reverse mortgage loan is suitable for you, click here.
If your home's value has improved dramatically, interest rates have dropped, or you simply want to be sure that your spouse can stay in the house in the event that you pass away or have to move out, a reverse mortgage refinance might be the best choice for you.