Can a HECM Be Refinanced?
December 1, 2003
“Is it possible to increase the amount I can draw on my FHA reverse mortgage by refinancing?”
Probably. You are older, your house has probably appreciated, and interest rates are lower now than when you took out your current HECM. All these factors would increase your credit line above what it is now. If the value of your property was higher than the FHA loan limit when you took your current HECM, subsequent increases in the loan limits will also help.
However, refinancing means incurring another set of settlement costs. Your lender may be willing to accept a flat origination fee of $2,000, instead of the charge on new loans, which is the greater of $2,000 and 2% of property value – ask! Congress has also authorized HUD to charge mortgage insurance only on the value increase. If your house appreciated from $100,000 to $150,000, for example, the 2% refinance premium would be paid only on the $50,000. Unfortunately, HUD has not yet issued the rule required to implement this change.
When you consider a refinance, focus on two numbers: the increase in credit line from the previous HECM, and the refinance cost. You can get these numbers from a lender, or by using any one of the following online calculators: www.rmaarp.com, www.revmort.com, www.nrmla.org, and www.ffsenior.com. You must enter your current reverse mortgage debt under “Mortgages and liens on your home.”
If it costs $8,000 to refinance and your credit line rises by $40,000, you probably want to do it. If it costs $8,000 but your credit line rises only by $4,000, you probably don’t. But you might, if you have zero interest in the size of your estate.
“Is it possible to increase the amount I can draw on my FHA reverse mortgage by refinancing?”
Probably. You are older, your house has probably appreciated, and interest rates are lower now than when you took out your current HECM. All these factors would increase your credit line above what it is now. If the value of your property was higher than the FHA loan limit when you took your current HECM, subsequent increases in the loan limits will also help.
However, refinancing means incurring another set of settlement costs. Your lender may be willing to accept a flat origination fee of $2,000, instead of the charge on new loans, which is the greater of $2,000 and 2% of property value – ask! Congress has also authorized HUD to charge mortgage insurance only on the value increase. If your house appreciated from $100,000 to $150,000, for example, the 2% refinance premium would be paid only on the $50,000. Unfortunately, HUD has not yet issued the rule required to implement this change.
When you consider a refinance, focus on two numbers: the increase in credit line from the previous HECM, and the refinance cost. You can get these numbers from a lender, or by using any one of the following online calculators: www.rmaarp.com, www.revmort.com, www.nrmla.org, and www.ffsenior.com. You must enter your current reverse mortgage debt under “Mortgages and liens on your home.”
If it costs $8,000 to refinance and your credit line rises by $40,000, you probably want to do it. If it costs $8,000 but your credit line rises only by $4,000, you probably don’t. But you might, if you have zero interest in the size of your estate.