Can you refinance to a new reverse mortgage?

Taking out a reverse mortgage can feel like a final decision, but that isn't always the case. Like other loan products, a reverse mortgage can often be refinanced, either to a new product or with a different lender. 

In some cases, homeowners over a certain age who hold a traditional home loan - and who can't or don't want to continue making repayments - may also be able to refinance that debt into a reverse mortgage.

Can you refinance a reverse mortgage?

Refinancing a reverse mortgage, or refinancing to a reverse mortgage, involves taking out a new reverse mortgage and using the unlocked funds to repay your existing loan. After you complete all the needed paperwork, the actual process will likely be taken care of by your new lender. 

Once refinanced, the new reverse mortgage generally operates as expected, allowing you to access your home equity as a lump sum, regular payments, or a combination of both.

But refinancing a reverse mortgage isn't always straightforward. Whether it makes sense depends on your age, available equity, current loan balance and future plans for your home.

Refinancing an existing reverse mortgage

If you already have a reverse mortgage, refinancing to a new facility may allow you to secure a lower interest rate or reduce fees. It may also provide flexibility to add or remove parties from the loan, depending on the lender's policies.

Additionally, if you took out your reverse mortgage before 2012, you might not have the same negative equity protection that today's borrowers do. Make sure to check your contract and, if you don't have negative equity protection, see whether protection can be added, or consider refinancing to a loan with protection in place.

Refinancing a traditional home loan to a reverse mortgage

If you hold a standard home loan and meet the eligibility criteria, you may be able to refinance to a reverse mortgage.

Unlike a traditional mortgage, a reverse mortgage does not require regular repayments. Instead, it allows homeowners to access the equity built up in their property. Repayment is typically triggered when the home is sold or when the borrower permanently moves out (into aged care or retirement living, for example).

If you're considering refinancing a traditional home loan to a reverse mortgage, it's important to check whether you meet equity requirements. Reverse mortgage providers generally cap how much equity can be released, with older borrowers typically able to access a higher percentage than younger borrowers.

If the outstanding balance on your home loan exceeds the amount you're eligible to access through a reverse mortgage, refinancing to this type of loan may not be possible.

How to refinance a reverse mortgage

The first step to refinancing a reverse mortgage is to consider if you're eligible for a new facility. Shifting circumstances, lender policies, and interest rates can mean that a borrower who once qualified without an issue may not qualify again later down the line.

To be eligible for a new reverse mortgage, you'll likely need:

• To be 60 years or older

• Have enough home equity
  Reverse mortgage lenders typically limit the portion of a home's equity a borrower can access, which is generally higher for each year after a person turns 60. If your existing reverse mortgage has seen your equity fall below set limits, you might not be eligible to refinance.

When refinancing a reverse mortgage might make sense

There are a couple of scenarios where refinancing your reverse mortgage could be an option worth considering, including:

• Your interest rate is no longer competitive
  Refinancing could see you realising a lower interest rate.
  
  
• Fees are lower with a new lender
  Some reverse mortgage providers charge higher fees than others, refinancing could help you save money over the long term.
  
  
• You want to change how funds are accessed
  You might want to change how you receive your unlocked equity, for instance from a lump sum to regular payments. Though, you can probably make this change without refinancing.
  
  
• Your circumstances have changed
  Refinancing might allow you to add or remove a partner from your loan agreement, for instance.

When refinancing may not be worth it

• You plan to sell the property in the near future
  If you're looking to sell soon, you may not realise enough in savings to recover refinancing costs
  
  
• Your available home equity has reduced since you took out the loan
  This can limit how much you can refinance.

How much does it cost to refinance a reverse mortgage?

The cost of refinancing a reverse mortgage can vary depending on the lender, the value of your property and your existing loan terms. Common costs may include:

• Discharge or exit fees charged by your current lender
  Discharge fees can be hundreds of dollars, while break fees (if applicable) can also be significant costs.
  
  
• Establishment or application fees on the new reverse mortgage
  Some reverse mortgage lenders may charge establishment fees in the range of around $900 to $2,500, depending on the provider.
  
  
• Property valuation fees
  These can vary depending on the contracted valuer, the property being valued, and its location.
  
  
• Legal and administrative costs
  Many lenders require reverse mortgage borrowers to receive their own legal advice as part of the application process, at their own cost.

Because interest on a reverse mortgage compounds over time, any upfront costs are typically added to the loan balance. This means refinancing costs can have a long-term impact on the amount of equity remaining in your home.

If you're considering refinancing, it's important to carefully weigh the potential benefits against the costs - and to seek independent financial or legal advice - to ensure the switch aligns with your long-term financial needs.

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