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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