A reverse mortgage, also known as home equity conversion mortgage (HECM), is a special type of home loan geared towards homeowners aged 62 and above. It does not require monthly mortgage payments, although borrowers are still responsible for homeowner's insurance and property taxes.
Just like any other mortgage refinancing
, switching from one reverse mortgage to another is possible. But there are only a few conditions wherein this kind of refinancing is beneficial to the homeowner. Only when the homeowner receives a substantial benefit compared to the closing costs incurred in refinancing the loan does this become a viable option.
It usually happens when the home has appreciated in value or the interest rates
have decreased. There are also a few instances when changing the type of reverse mortgage makes economic sense, such as securing a fixed rate reverse mortgage in an environment where interest rates are rising.
For example, the homeowner availed of a reverse mortgage in 2000 when the home was still worth $200,000 and the interest rate was at seven per cent. There is a remaining line of credit at $50,000. Fast forward to 2015, when the home's value has appreciated to $350,000. If the homeowner opts for a reverse mortgage at this time, the lender would pay off the outstanding reverse mortgage balance and the homeowner would enjoy a low interest rate and an available line of credit of $98,000.
In general, refinancing usually does not have any major benefits for most reverse mortgages originating after 2006 since unethical lenders can push for a refinance even if the client spends $8,000 in fees and receives the same amount in benefits.
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