Why Refinance a Reverse Mortgage?

Meet John, a retiree who asked the question, “can I take equity out of my house without doing a cash out refinance on my original home mortgage?” The answer was, “yes.” He accessed his home equity with a reverse mortgage on his house many years ago in order to supplement his retirement income. At the time, John's home was worth $500,000, and he was able to borrow $250,000, tax free, through his reverse mortgage.

Over the years, John continued to live in this house and enjoy his retirement, while the value of his home steadily increased due to a booming housing market. Today, John's home is worth $1 million, and he has only used $100,000 of his original reverse mortgage available principal limit of $250,000. Due to the increased value of his home, this now leaves him with a much larger amount of available equity than when he took out his reverse mortgage. However, he doesn’t have instant access to this increase in home equity because his original principal limit – the amount of money he can access in home equity with a reverse mortgage – was locked at the time he originated the original home equity loan. By refinancing his reverse mortgage, he is able to access a larger portion of his home’s stored value than what he was previously given access to.

As a result of his home's increased value, John now has a significant amount of equity in his home. So, he has asked a new question, “can you refinance a reverse mortgage?” He's interested in accessing the extra funds through a home equity refinance in order to fund home renovations and pay off some outstanding debts.

The answer to his second question is also “yes.” In this situation, John should consider refinancing his reverse mortgage in order to access his new equity and get a larger loan amount. Refinancing would allow John to take out a new reverse mortgage based on his home's current value, which would be significantly higher than the value at the time he first took out his reverse mortgage. This would give him a higher principal limit than before which translates over to more available money through home equity.

By doing a reverse mortgage refinance, John could access a larger loan amount and use the additional funds to pay for his home renovations and pay off his debts. Additionally, in John's situation, he may have a growing line of credit due to elevated interest rates. With a Home Equity Conversion Mortgage (HECM) line of credit, the borrower can draw funds as needed, up to a certain limit based on the home's value and the borrower's age. In John's case, his home has increased in value significantly over the years, which means that his available line of credit may have grown as well. By refinancing his reverse mortgage, John could potentially access a larger line of credit.

In short, refinancing a reverse mortgage can be a smart move for seniors like John who have a significant amount of equity in their homes due to a booming housing market. By refinancing a reverse mortgage, they can access additional funds – even a stronger growing line of credit – and improve their quality of life in retirement.

Are you a senior looking at different options to refinance a home equity loan? Or asking yourself, “how much money do I need to refinance my reverse mortgage?” We are here to help you answer those questions. We focus solely in reverse mortgages and home equity conversion mortgages (HECM), answering these questions is our specialty. Please reach out to us for a no-obligation conversation to see if refinancing your reverse mortgage is right for you.