Is Refinancing A Reverse Mortgage A Good Idea?

Reverse mortgages are gaining in popularity as more seniors are reaping the benefits and feel comfortable using this relatively new type of financial product. However, refinancing of these is often overlooked. If you need extra funds then this could be an option, but you must first know, how much you'd get, what fees you'd have to pay and what you'd be left with.

Originally slow to gain acceptance, reverse mortgages are becoming an ever more attractive proposition for many seniors. The ability to raise a loan against the home, without the worry of monthly repayments and being able to live indefinitely in the home is very appealing. However, many find themselves needing or wanting more cash for a variety of reasons. They may need the extra for health care expenses, house remodeling or paying grandchildren's college expenses. Most don't realize that they could refinance their existing reverse mortgage.

If you currently have such a loan, took it out some years ago and your home has increased in value, you would almost certainly qualify. But, you should realize the extra expense of closing the original loan and taking out a new one. The closing and upfront costs on this type of loan are higher than other types. Originally, a HUD reverse mortgage charged an annual insurance premium of 2% of the appraisal value of the home. When refinancing the loan, a further upfront 2% insurance premium was charged on the new value of the home. This made it a very expensive proposition for most homeowners and substantially reduced the equity of the home. However, in recent years, HUD changed its policy so that the 2% insurance premium was based on only the differential of the equity value of the home.

HUD realizes that refinancing can be a good option for many and has changed its rules and charges accordingly to encourage seniors to consider it as an option. Also, each year it re-evaluates the maximum loan amount for a home; the amount increases, so even if you borrowed the maximum amount some years ago, you should be able to borrow more.

If you currently have a proprietary or jumbo reverse mortgage you will have to consult your original broker to find out the closing costs of the original loan and what the upfront costs of the new one would be. Jumbo reverse mortgages usually incur higher costs than does an HUD, so it's important you know exactly how much you will be charged.

You don't always require counseling when you refinance, but it may still be a very good idea to seek some independent advice to make absolutely sure it's in your best interests.

Also, you should talk to your heirs as refinancing will significantly reduce the equity of your home. When it comes time to repay the loan, your heirs (or you yourself) could be left with very little or no money from the sale of your home should you decide to sell it to pay back the loan.

Reverse mortgage refinancing isn't for everyone, but for those who didn't borrow the maximum amount originally and now find themselves needing more funds it is definitely something that should be considered.

The above is a brief overview; follow the links for more detailed advice on reverse mortgage refinancing and reverse mortgage information on a HUD, Fannie Mae or jumbo reverse mortgage.