Who can refinance a reverse mortgage?
Both FHA and proprietary Reverse Mortgages can be refinanced without any prepayment penalty for eligible homeowners.
Reasons to consider refinancing are:
1. To capture additional tax-free cash because of the increase in home values or lender terms.
2. To modify the loan terms (rate or margins).
3. To add or exclude borrower(s).
To refinance a Reverse Mortgage, the FHA or proprietary lender requires that the existing and proposed new loan meet the following eligibility requirements:
One year must have passed since the original loan was closed.
The financial benefit to the borrower must equal or exceed five time the cost of the proposed new transaction.
The borrower must have at least 5% of the new loan proceeds available to him/her after paying off the original loan.
These criteria exist to comply with “anti-churning” rules which are meant to protect the borrower. These criteria assure the lender and the borrower that the refinancing is to benefit the borrower and is not merely to generate commissions for the mortgage broker.
If the existing and new loan meet these conditions, California borrowers must attend an FHA or Lender counseling session. Once completed, the borrower can apply to the refinance loan. The same process is used when applying to refinance a Reverse Mortgage as when applying for a new Reverse Mortgage.
*A client can provide a written request to waive these conditions due to unique circumstances. That request is ruled upon by senior management of the lender.