Due to recent changes in federal housing policy, it may be beneficial to refinance a reverse mortgage if your loan falls under certain categories. In fact, people 62 years of age or older, are constantly reminded about the benefits of a reverse mortgage, and when they acquire a reverse mortgage loan, constantly reminded about the possibility of refinancing it.
But is it really beneficial in the grand scheme? It depends on the situation. Homeowners with a large amount of equity in their home, who can benefit from a refinance from new federal housing regulations, and pass the eligibility criteria should strongly consider it.
Here are some things to consider.
Instances in Which it is Favorable to Refinance
You Need Cash Fast
Many people that refinance their reverse mortgage simply need money to complete a project or pay their bills. Don’t give up leverage in your home just to pay your bills, however. Make sure the interest rates are favorable to the transaction.
Your Home Has Appreciated in Value
If your home is valued much higher than it was when you acquired the initial reverse mortgage, it makes sense to refinance because you’ll have access to a higher line of credit and more funds.
Your First Loan Was Before the HECM Limit Increased
This is where federal regulations come into play. Reverse mortages, or HECMs, initially faced a lower maximum loan, but has been increased to 625,000 dollars. If this describes your loan, it makes sense to refinance.
Your Younger Spouse Has Recently Turned 62
If you’re worried about a younger spouse being forced to sell your home after you die, refinance with your spouse’s name also on the loan, assuming they’re 62 or older.
You Can Benefit From a Changed Interest Rate
If the interest rate has significantly decreased since the time you acquired your first HECM, you can probably benefit from refinancing.
If any of these scenarios describe your circumstances, it may be in your best interest to refinance your loan, however, there are certain criteria you need to meet first.
- HUD’s “5 times benefit rule”: In order to keep people from being victimized by bad loan officers, the Federal Department of Housing and Urban Development instituted a rule referred to as the “5 times benefit rule”. This entails that if your new closing costs are a certain amount, you must receive at least 5 times that in additional proceeds.
- You must be able to get at least 5% of the principle limit in proceeds: Similar to the 5 times rule, the proceeds from refinancing must be at least 5 percent of your loan principal limit.
Don’t know if refinancing your reverse mortgage is right for you? Consult the experts at Shenkman Loans for advice and information on how to structure your home loans in a way that benefits your family and your budget.