The eligibility requirements for a Refinancing Reverse Mortgage should be comparable if you previously met the requirements for one.
You have to
- aged 62 or more.
- Make the house your main place of abode.
- possess enough equity in your home.
Show that you have the means to pay off the loan's ongoing obligations, such as homeowners insurance, property taxes, and, if necessary, homeowners association dues.
Justifications for Refinancing
However, just because you can refinance does not mean that you ought do. Refinancing must offer a definite advantage. The first two relate to putting more money in your pocket; the third, to your peace of mind. Despite this, there are three reasons why refinancing can make sense.
- Your house has increased in value. The value of your property is a significant element in deciding your loan amount, in addition to your age and the current interest rate (principal limit). Since a reverse mortgage loan is a mechanism for converting home equity into tax-free cash, you may be able to withdraw more money by refinancing into a new reverse mortgage loan if your equity has increased.
Something to consider The maximum house value for a reverse mortgage that is guaranteed by the government is $970,800 for 2022. The maximum house value for your refinance would still be $822,375 even if the appraised value of your home was higher (let's suppose it was $900,000).
- The cost of borrowing has decreased. You might qualify for a refinance if interest rates have decreased after you obtained your initial reverse mortgage. Lower rates can result in a greater initial payoff, and the less interest you (or your heirs) must pay when the loan is due, the lower the rate of interest accrual.
The estimate is crucial since you want to know whether the newly refinanced amount would significantly improve your circumstances. The National Reverse Mortgage Lenders Association has created rules that state that the increase in principle should be at least five times the loan's closing fees. Additionally, the proceeds of the new loan must equal or exceed 5% of the amount being refinanced. In other words, once closing expenses are covered and the initial reverse mortgage is repaid, the amount that is left over should be at least 5% of the total amount you refinanced. The 5-5 rule refers to these two requirements for refinancing reverse mortgages.
- Give your partner a sense of security. If your spouse was excluded from the original reverse mortgage and you wish to include them in the loan, refinancing may be a wise choice. That could occur for a variety of reasons. Perhaps your spouse wasn't 62 when you first obtained your reverse mortgage. Maybe you were single at the time. The reasons are less crucial than the effects of only having one spouse cosign for the loan. The widow or widower may be obliged to repay the loan in full, which may necessitate selling the house, if they are not included on the reverse mortgage loan documentation. The surviving spouse may stay in the house if both are listed. Similar to this, if one spouse had to move into a nursing home (be absent from the home for 12 months or more), the other could continue to live in the house and continue to receive loan payments as long as they met the ongoing requirements of the reverse mortgage, which include paying for home upkeep costs, property taxes, and homeowners insurance.
Refinancing a reverse mortgage is not something you should do hastily. In reality, many lenders apply a “seasoning” rule, which restricts refinancing options to borrowers who have had their initial reverse mortgage for a specific amount of time (usually 18 months). Click here to determine if a reverse mortgage loan is appropriate for you.
A reverse mortgage refinance might be the right option for you if, during that time, your home's value has significantly increased, interest rates have decreased, or you just want to ensure that your spouse can stay in the house in the event that you pass away or have to move out.
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