Reverse Mortgage Refinancing - Is It For You?
L.A. Chronicle, April 20th, 2008
Many seniors have taken out a reverse mortgage and are enjoying the
benefits of receiving cash from the equity in their home. However, many
still find, for various reasons, that the money they receive is still
not enough. Refinancing the original loan could be an option, but is it
the best option?
Everybody is familiar and feels comfortable with the idea of
refinancing an ordinary home equity loan - if you take out a loan and
then some time later need extra cash and there's more equity left in
the home, many would definitely take a look at raising cash this way.
But many seniors who find they need more cash rarely think about
refinancing their existing reverse mortgage. Many don't even realize
that this is even an option.
In the past there were definite obstacles in the way. For instance, an
HECM reverse mortgage incurs a 2% insurance fee on the value of
property with a 0.5% annual premium that is deducted from the cash
payments. This up front fee reduces the equity that's left in the home
and ending the loan, whether by moving, selling or dying means less
money for the borrower(s) or heirs. This was further compounded when
seeking reverse mortgage financing as an additional 2% would be charged
on the total value of the property. So, if the home cost 200,000
dollars when the first loan was taken out, 4000 would be payable, thus
reducing the equity to 196,000. Later, if the home value increased to
300,000 and refinancing was sought, an additional 2% would be payable,
i.e. 6,000. This would mean total costs of 10,000, making refinancing
an expensive proposition.
The Department of Urban Development realized this problem and being
keen for seniors to see refinancing as a viable option has changed the
insurance so that it's only the value differential that is liable. So,
in the above example, the home rose by 100,000 with only a 2% insurance
premium of 2,000: total costs would now only be the original 4,000 plus
2,000, a total of 6,000 rather than 10,000.
Also, the obligatory counseling can be waived, in certain circumstance, when refinancing a HECM reverse mortgage.
How do you know if you qualify?
Read more of this article
About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com