Reverse mortgages allow those 62 and older to tap their home’s equity. These mortgages are often used for cash-strapped homeowners that need cash immediately. Same as a regular mortgage, a reverse mortgage can be refinanced as well.
Defining A Reverse Mortgage
As the name suggests, a reverse mortgage is the opposite of a standard mortgage. With the tables turned, it’s the borrower that is now receiving monthly payments from the lender. This role reversal doesn’t come without its downfalls. Borrowers must later on pay the principal of the loan back along with interest. Generally speaking these loans are paid back through the sale of the home.
Reverse Mortgage Varieties
With the rise in popularity of reverse mortgages, lenders have heeded the call of the market. The most popular reverse mortgage is the Home Equity Conversion Mortgages, otherwise known as HECMs. Such mortgages are provided via the Federal Housing Administration. Other popular reversal mortgages include: proprietary reverse mortgages and single-purpose reverse mortgages. The former loan does not have government backing and the latter can only be used for one specific purpose.
How A Reverse Mortgage Refinance Functions
Refinancing a reverse mortgage is not wholly dissimilar from refinancing a conventional loan. The essence of the loan remains in tact. The goal is to replace the existing mortgage with a better one. What defines a ‘better’ mortgage might be one that offers a different interest rate or monthly payout.
Lenders are not always gleefully allowing for the refinancing of loans. A 5-5 rule is used to determine whether refinancing benefits the lender or not. There are two caveats that must be met in order to satisfy the rule:
-The increase of the principal must equal or be more than five times the loan at closing.
-Loan proceeds must be equivalent or more than 5% of the amount that is being refinanced.
In addition, homeowners cannot refinance a reverse mortgage before possessing a reverse mortgage for 18 months.
When To Refinance A Reverse Mortgage
Just because you qualify for a refinance doesn’t mean you should. There are certain situations that are suited for refinancing. Homeowners might be looking to take advantage of the change in rates since the closing of the home. It’s also possible that the home has increased in value and now the equity of the home has increased. A less common reason to refinance is if you’d like to add a person to the loan that wasn’t on the original. Adding a spouse to the loan would mean that she/her receives reverse mortgage benefits should you die.
Things To Consider
When weighing whether refinancing is the way to go, there are four areas worth considering. Interest, spouse protection, equity access, and loan fees must all be vetted prior to making the switch.
To have a more in-depth understanding of whether refinancing a reverse mortgage is right for you, consult with Affiliated Mortgage, the most qualified mortgage lenders in Sioux Falls, SD. This mortgage lender will walk you through the process and weigh the pros and cons of various reverse mortgages to see which one is right for you.
Reverse mortgages allow those 62 and older to tap their home’s equity. These mortgages are often used for cash-strapped homeowners that need cash immediately. Same as a regular mortgage, a reverse mortgage can be refinanced as well.
Defining A Reverse Mortgage
As the name suggests, a reverse mortgage is the opposite of a standard mortgage. With the tables turned, it’s the borrower that is now receiving monthly payments from the lender. This role reversal doesn’t come without its downfalls. Borrowers must later on pay the principal of the loan back along with interest. Generally speaking these loans are paid back through the sale of the home.
Reverse Mortgage Varieties
With the rise in popularity of reverse mortgages, lenders have heeded the call of the market. The most popular reverse mortgage is the Home Equity Conversion Mortgages, otherwise known as HECMs. Such mortgages are provided via the Federal Housing Administration. Other popular reversal mortgages include: proprietary reverse mortgages and single-purpose reverse mortgages. The former loan does not have government backing and the latter can only be used for one specific purpose.
How A Reverse Mortgage Refinance Functions
Refinancing a reverse mortgage is not wholly dissimilar from refinancing a conventional loan. The essence of the loan remains in tact. The goal is to replace the existing mortgage with a better one. What defines a ‘better’ mortgage might be one that offers a different interest rate or monthly payout.
Lenders are not always gleefully allowing for the refinancing of loans. A 5-5 rule is used to determine whether refinancing benefits the lender or not. There are two caveats that must be met in order to satisfy the rule:
-The increase of the principal must equal or be more than five times the loan at closing.
-Loan proceeds must be equivalent or more than 5% of the amount that is being refinanced.
In addition, homeowners cannot refinance a reverse mortgage before possessing a reverse mortgage for 18 months.
When To Refinance A Reverse Mortgage
Just because you qualify for a refinance doesn’t mean you should. There are certain situations that are suited for refinancing. Homeowners might be looking to take advantage of the change in rates since the closing of the home. It’s also possible that the home has increased in value and now the equity of the home has increased. A less common reason to refinance is if you’d like to add a person to the loan that wasn’t on the original. Adding a spouse to the loan would mean that she/her receives reverse mortgage benefits should you die.
Things To Consider
When weighing whether refinancing is the way to go, there are four areas worth considering. Interest, spouse protection, equity access, and loan fees must all be vetted prior to making the switch.
To have a more in-depth understanding of whether refinancing a reverse mortgage is right for you, consult with Affiliated Mortgage, the most qualified mortgage lenders in Sioux Falls, SD. This mortgage lender will walk you through the process and weigh the pros and cons of various reverse mortgages to see which one is right for you.
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