Can you refinance a reverse mortgage?

Refinancing a reverse mortgage is a financial strategy that can offer major benefits for retirees looking to improve their economic situation. Whether you're seeking to lower your interest rate, tap into more home equity, or adjust the terms of your loan, refinancing can provide a pathway to greater financial flexibility.

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Refinancing a reverse mortgage is possible—and under the right conditions, a great move for homeowners. In this blog, we’ll discuss how a reverse mortgage refinance works, when it makes sense, and refinancing alternatives.

Can you refinance a reverse mortgage?

Yes, you can refinance a reverse mortgage. Homeowners typically refinance their traditional home loans to obtain better borrowing terms. The same is true for reverse mortgages. 

How do you refinance a reverse mortgage?

Whenever you refinance a loan, you trade your existing loan for a new one—ideally with better terms. With reverse mortgage refinancing, you can replace your existing reverse mortgage with either another reverse mortgage loan or a traditional one. 

Refinancing into a new reverse mortgage vs. a traditional mortgage

‍Refinancing into a new reverse mortgage

If you refinance one reverse mortgage into another, the new loan amount will be based on the same factors as your first reverse mortgage: your age, the home’s value, and the current interest rate. You can receive the new reverse mortgage funds in a lump sum, a line of credit, or regular monthly payments. You could also combine the last two options. 

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Very few lenders may be willing to offer this, so it’s best to explore HECM reverse mortgages, which provide the best chance of qualifying. 

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Refinancing into a new traditional mortgage

If you choose to refinance your reverse mortgage into a traditional mortgage, the new loan amount will be based on the same factors as a conventional mortgage: your income, credit score, and current interest rate. When you replace your loan with a conventional mortgage, you buy out the reverse mortgage and resume making monthly mortgage payments. 

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Borrowers who are refinancing to obtain additional retirement funds usually choose a cash-out refinance. This allows you to replace your current reverse mortgage with a larger loan and receive the difference in cash.

Requirements for a reverse mortgage refinance

Qualifying is similar to qualifying for a reverse mortgage. Lenders require the following from borrowers when applying for a reverse mortgage refinance:

• Be 62 years or older. 
• Use the home you are refinancing as your primary residence. Vacation homes and investment properties don’t qualify for reverse mortgage refinances.
• Own the home outright or have enough home equity accumulated to compensate for the costs of borrowing. 
• Demonstrate you can keep up with home maintenance, homeowner’s insurance, and property taxes. While you won’t be making monthly mortgage payments, you’ll still be responsible for keeping up with costs related to the home. 
• Not have refinanced your reverse mortgage in the last 18 months. 
• Show that you are not delinquent on any federal debt, such as student loans or income taxes.  
• Be willing to participate in a consumer information session with a government-approved counselor to make sure you understand the conditions of a reverse mortgage refinance. 

When does it make sense to refinance a reverse mortgage? 

While refinancing a reverse mortgage can be beneficial, it takes time and costs money. It’s important to ensure the refinance is worth it before getting started. Here are some examples of when refinancing reverse mortgage loans makes sense. 

Home values or HECM limits have increased

Increased home value often means increased equity. If your home is worth more now than it was when you first took out your reverse mortgage, you can refinance to access more of your equity. You may also want to borrow more if home equity conversion mortgage (HECM) limits have increased. HECM limits influence how much most homeowners can borrow against their home’s equity and can change every year.

Interest rates are lower 

Another reason you may want to refinance is to take advantage of lower interest rates. Reverse mortgages don’t require monthly payments as long as certain conditions are met. However, interest continues to accrue on the outstanding balance. If interest rates have dropped since you first got your reverse mortgage, you may want to refinance to save money on future interest payments.

You want to switch from a variable to a fixed rate

Reverse mortgages can have a variable or fixed rate. If you suspect interest rates will soon go up, you might want to refinance in order to stabilize the interest rate on your loan.

You need to add your spouse

In some cases, non-borrowing spouses can be held liable for paying off their borrowing spouse’s reverse mortgage balance. This is possible when the borrowing spouse passes away or has to relocate to an assisted living facility for long-term care. As long as your spouse is living in the home, you can add them to the loan and relieve them of that responsibility.

You want to go back to a conventional mortgage

If at any point you change your mind about having a reverse mortgage, you can refinance it back into a traditional loan. You may want to get rid of your reverse mortgage if your financial situation improves significantly or if your heirs decide they don’t want to sell the home after you pass away to cover the outstanding balance.

Alternatives to refinancing a reverse mortgage 

If refinancing your reverse mortgage doesn’t fit your needs, there are other options to explore. Learn more about alternatives below.

Sell your home

In most cases, borrowers who take out a reverse mortgage are willing to let go of their homes after they’ve passed away. Depending on whether or not you want to downsize, you may be willing to let go of your home before then. Selling your home could provide you with enough money to meet your needs and eliminate the need to keep up with home-related expenses. 

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Request a payoff statement from your reverse mortgage lender to calculate what you currently owe on your reverse mortgage and how much you could make on your home sale. Be sure to factor in the cost of moving and commissions paid to your listing agent.

Modify repayment terms on your reverse mortgage

If your primary motivation for refinancing your reverse mortgage is to take advantage of one of the five adjustable-rate repayment plans, you should know you don’t need to refinance. All you need to do is talk to your mortgage service provider, fill out some paperwork, and pay a small fee to switch from one adjustable rate to another.

Consider a home equity investment (HEI)

Home equity investments allow you to tap into your home equity and receive a lump sum of cash in exchange for a share of your home’s future appreciation. You don’t take on additional debt, and there are no monthly payments. Instead, you repay your investment when you sell your home, refinance, or use another source of funds any time during a flexible 30-year term. 

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If you choose to leverage an HEI, your reverse mortgage will be paid off with the proceeds, and you can pocket the remaining cash. 

Final thoughts on refinancing a reverse mortgage

Refinancing a reverse mortgage can be a strategic move to enhance financial stability and improve overall retirement planning. By securing a lower interest rate, accessing additional equity, or adjusting the loan terms to better suit your current needs, you can potentially increase your financial flexibility. 

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However, it's crucial to thoroughly evaluate your options, consider the associated fees, and consult a financial advisor to ensure that refinancing aligns with your long-term goals.

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Accomplish your goals with a Home Equity Investment from Point. Eligible homeowners benefit from no monthly payments, flexible credit evaluations, and the ability to use the funds freely. Explore Point’s HEIs here.