Can You Refinance a Reverse Mortgage? Explained

The quick answer to “can you refinance a reverse mortgage” is: Yes. 

Like a traditional mortgage, you can choose to refinance yours for any reason. However, does it make sense to do so? That’s another question entirely. Reverse mortgage requirements can be difficult to understand, and refinancing can complicate the process. 

Reverse mortgage loans have drawbacks—less borrowing power and mandated mortgage insurance—so you may want to consider paying yours off and switching to another method to leverage your home equity and continue living in your home before you refinance yours.¹

Reasons to Consider Refinancing Your Reverse Mortgage

No doubt about it—there are hoops to jump through and paperwork to tackle. A mortgage refinance is worth it only if the benefits outweigh the costs for your situation.

Lower Interest Rates

Switching to a lower interest rate is a top reason for any type of refinancing, and that includes reverse mortgages. 

While loan rates overall have increased in the past few years, check current reverse mortgage rates specific to your circumstances (which may have changed since your original loan application). Monthly payments are calculated based on: 

• Borrower age (rates improve with age)
• Property value and zip code
• Disbursement option and whether it’s fixed or variable rate

Increased Home Value

Nationally, there’s been a 108% increase in single-family home values over the past decade.² If your reverse mortgage is at least a few years old, chances are good that your property value has increased. 

Since the amount you can borrow through a reverse mortgage is based in part on property value, refinancing may allow you to access additional funds. Plus, you may be able to borrow more since HECM loan limits have increased over the years.

Changes in Financial Situation

Reverse mortgages can last for decades, and a lot can change over that time. 

When you refinance, you can increase your loan proceeds and restructure your disbursement choice of: 

• Lump sum 
• Monthly payments for a limited term or for your lifetime
• Credit line 
• A combination of the three

But how much money do you get from a reverse mortgage, especially in the case of refinance? It depends on the factor above, as well as several other elements of your financial condition. 

Additional Borrower

Another reason to refinance is to add another individual to the loan to extend the right of residency and access to borrowed funds. This can be a spouse, a sibling, a child, or even a roommate, so long as they’re age 62 or older and meet the other eligibility requirements.

How Refinancing a Reverse Mortgage Works

The refinancing process is very similar to taking out the original loan—it’s a brand new reverse mortgage that pays off and replaces the old one. As you may remember from the original application process, there are several reverse mortgage pros and cons to consider before refinancing. You’ll need to submit an application to a reverse mortgage lender, receive financial services counseling, have your home appraised, and pay upfront costs. 

There are a few key differences, however. You must: 

• Pass the “5-times benefit rule” that protects you from reducing equity in your property³
• Meet current guidelines, which may have changed since your first loan
• Be at least 18 months away from the original reverse mortgage
• Be at least 12 months away from a prior reverse mortgage refinancing

Comparing Your Refinancing Options

Refinancing a reverse mortgage can also take a different path—instead of a new reverse mortgage, you can opt to refinance to a standard rate-and-term or cash-out refinance. 

Mortgage applicants aren’t judged based on age, so older seniors are free to apply for conventional mortgages of 30 years or any available term. 

Contrary to reverse mortgage refinance, a conventional refi means: 

• You’ll have monthly payments (interest-plus-principal) starting immediately
• The amount must be enough to pay off your reverse mortgage principal and interest
• Upfront fees will be lower, with closing costs of 2 – 5% of the loan total⁴
• Your interest rate will be dependent on credit score and debt-to-income (DTI) ratio
• Income (including pension and social security) will be a factor in loan approval

Making an Informed Decision on Refinancing

However you proceed, shop around and get the facts first. There are online resources to help compare options such as this reverse mortgage calculator and the Consumer Financial Protection Bureau’s “Reverse Mortgages: A Discussion Guide” booklet.^5,6

Before recommitting, consider your alternatives. Rather than refinancing, you may want to pay off your reverse mortgage with a home equity loan, home equity line of credit (HELOC), or a debt-free sale-leaseback. You may be wondering, “How do you pay back a reverse mortgage?”. Like a refinance, a reverse mortgage repayment can be a complex process, and it’s important to consider all your options before proceeding. 

Truehold's sell and stay transaction combines the sale of your home with a change in status from homeowner to renter while you continue to live there. Unlike reverse mortgages and equity financing, Truehold: 

• Helps you avoid new debt
• Allows you to unlock - and pocket - your home equity
• Is a simple transaction, without many complicated and expensive interest rates and fees

Regardless of your age or occupancy status, a sell and stay transaction allows you to continue living in your home so long as you pay rent and comply with the lease. And you can use your newly unlocked equity however you see fit.

Ready to learn more? Give us a call and a Truehold representative will connect with you and help you decide if a sell and stay transaction is right for you.

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Sources: 

1. Debt.org. The Reverse Mortgage: Pros and Cons. https://www.debt.org/real-estate/mortgages/reverse/‍
2. Don't Quit Your Day Job. Historical US Home Prices: Monthly Median from 1953-2024. https://dqydj.com/historical-home-prices/‍
3. All Reverse Mortgage, Inc. 2024 Reverse Mortgage Refinance Guide: New Limits, Rates & Expert Tips! https://reverse.mortgage/refinance‍
4. Bankrate. How much does it cost to refinance a mortgage? https://www.bankrate.com/mortgages/how-much-it-costs-to-refinance/‍
5. National Reverse Mortgage Lenders Association. Reverse Mortgage Calculator. https://www.reversemortgage.org/about/reverse-mortgage-calculator/‍
6. Consumer Financial Protection Bureau. Reverse Mortgages: A Discussion Guide. https://files.consumerfinance.gov/f/documents/cfpb_reverse-mortgage-discussion-guide.pdf

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