Does Refinancing a Reverse Mortgage Make Sense for You?

We occasionally receive emails from folks who already have a reverse mortgage, typically a Home Equity Conversion Mortgage (HECM), and are wondering if it’s possible to refinance it. The simple answer is yes, it’s possible. Refinancing can be a means of increasing the amount of money you’re eligible to receive from the loan, and it can also protect your spouse from losing the home if you pass away first.

Click here to get more information about refinancing a reverse mortgage and speak to a specialist, absolutely free.

Though we can’t make a recommendation of what you should do – every situation is unique – we’ll cover what refinancing means and how to think through the decision. After the introduction, here’s what you’ll find:

  1. When to Refi
  2. Example
  3. HECM Statistics
  4. Top Refi Lenders

More Complicated than Conventional Home Loans

Refinancing is common for homeowners with a conventional mortgage. In fact, there’s even a ‘rule of thumb’ which states that you should only think about taking action if interest rates have fallen by 2% or more. To give you a concrete example, the rule of thumb would tell a borrower with a home loan at 5% to begin thinking about refinancing once interest rates hit 3%. Most conventional refinances are done to save money on interest payments, and this rule of thumb captures the trade off between saving on interest and paying for the new loan.

With reverse mortgages, it’s more complicated. First, you may be looking to refinance because it’ll increase the amount that you can draw. This could be true if:

  • Interest rates have dropped
  • Your property value has increased
  • Principle limit factors have changed in your favor

You may also be making the decision for other reasons:

  • Your spouse is not named on the current HECM loan, and you plan to add her to ensure that the loan does become due if you pass away
  • You are one of the rare borrowers with a proprietary reverse mortgage and want to ‘refinance’ into a HECM

Of course, there are closing costs associated with a reverse mortgage refinance. These are the same costs that must be paid with a new loan, which we cover here.  The one exception is that the borrower must only pay a mortgage insurance premium on the increase in the home’s value.

Click here to get more information about refinancing a reverse mortgage and speak to a specialist, absolutely free.

Working Toward a Rule of Thumb

Most reverse refinances are what is referred to as HECM to HECM. The US Department of Housing and Urban Development (HUD) defines this as:

A HECM refinance case is the refinance of an existing HECM with a new HECM for the same borrower and same property with different loan specifications.

Although there is no popular rule of thumb, we can look at the guidance that HUD provides and draw some conclusions about when it might make financial sense for a borrower to refinance. As you probably know, counseling is required for first time HECM borrowers. It is required to refinance as well, though it is waived if the following is true:

The increase in the mortgagor’s principal limit (as estimated by the lender and provided to the borrower in Block #2 of the Anti-Churning Disclosure form) exceeds the total cost of the refinancing by an amount equal to five (5) times the cost of the transaction.

This is sometimes referred to as the “refinance benefit factor”, and the idea is fairly straightforward – if you stand to gain five times the financial benefit from refinancing over the closing costs that you must pay, it begins to make sense to consider it.

A Concrete Example

Let’s imagine that you have a HECM loan with an initial principal limit of $150,000. You look to refinance it and access your options.

Scenario A

You discover that your are eligible for a new principal limit of $200,000. This represents an increase of $50,000 ($200,000 – $150,000). The lender estimates your closing costs at $5,000.

In this case, your refinance benefit factor is 10 ($50,000 / $5,000), and it probably makes sense to consider.

Scenario B

You discover that you are only eligible for a new principal limit of $160,000. This represents an increase of $10,000 ($160,000 – $150,000). The lender estimates your closing costs at $5,000.

In this case, your refinance benefit factor is 2 ($10,000 / $5,000), and it probably doesn’t make sense to consider.

Other Factors to Consider

Every situation is different, and there are likely cases where someone faced with scenario A would not refinance while someone faced with scenario B would. For example, an individual faced with scenario B may find that adding a spouse to the loan or giving added protection to a non-borrowing spouse through refinancing still makes the decision worthwhile.

Click here to get more information about refinancing a reverse mortgage and speak to a specialist, absolutely free.

HECM Refinance Statistics

How popular is reverse mortgage refinancing among borrowers? To try to answer this question, we examined the HECM originations that are classified as ‘refinance’. To date, we count over 30,000 loans beginning in 2009. Here are the refinances per month beginning in 2015:

Current

Date Total Refis
2019-01-01 69
2019-02-01 170
2019-03-01 109
2019-04-01 162
2019-05-01 149
2019-06-01 146
2019-07-01 138
2019-08-01 169
2019-09-01 197
2019-10-01 330
2019-11-01 391
2019-12-01 396
2020-01-01 696
2020-02-01 690
2020-03-01 527
2020-04-01 256
2020-05-01 891
2020-06-01 914
2020-07-01 1,148
2020-08-01 1,120
2020-09-01 1,240
2020-10-01 1,280
2020-11-01 1,159
2020-12-01 1,552
2021-01-01 1,651
2021-02-01 1,434
2021-03-01 1,675
2021-04-01 1,727
2021-05-01 1,925
2021-06-01 2,037
2021-07-01 2,189
2021-08-01 1,836
2021-09-01 2,098
2021-10-01 2,585
2021-11-01 2,529
2021-12-01 2,606
2022-01-01 2,819
2022-02-01 2,602
2022-03-01 3,137
2022-04-01 3,066

Historic

Date Total Refis
2015-01-01 501
2015-02-01 526
2015-03-01 466
2015-04-01 449
2015-05-01 401
2015-06-01 501
2015-07-01 546
2015-08-01 651
2015-09-01 483
2015-10-01 454
2015-11-01 456
2015-12-01 538
2016-01-01 516
2016-02-01 540
2016-03-01 486
2016-04-01 376
2016-05-01 368
2016-06-01 399
2016-07-01 354
2016-08-01 470
2016-09-01 437
2016-10-01 448
2016-11-01 472
2016-12-01 621
2017-01-01 617
2017-02-01 614
2017-03-01 764
2017-04-01 727
2017-05-01 710
2017-06-01 797
2017-07-01 679
2017-08-01 765
2017-09-01 800
2017-10-01 716
2017-11-01 844
2017-12-01 757
2018-01-01 1,318
2018-02-01 713
2018-03-01 416
2018-04-01 250
2018-05-01 223
2018-06-01 166
2018-07-01 139
2018-08-01 169
2018-09-01 149
2018-10-01 152
2018-11-01 127
2018-12-01 91
2019-01-01 69
2019-02-01 170
2019-03-01 109
2019-04-01 162
2019-05-01 149
2019-06-01 146
2019-07-01 138
2019-08-01 169
2019-09-01 197
2019-10-01 330
2019-11-01 391
2019-12-01 396
2020-01-01 696
2020-02-01 690
2020-03-01 527
2020-04-01 256
2020-05-01 891
2020-06-01 914
2020-07-01 1,148
2020-08-01 1,120
2020-09-01 1,240
2020-10-01 1,280
2020-11-01 1,159
2020-12-01 1,552
2021-01-01 1,651
2021-02-01 1,434
2021-03-01 1,675
2021-04-01 1,727
2021-05-01 1,925
2021-06-01 2,037
2021-07-01 2,189
2021-08-01 1,836
2021-09-01 2,098
2021-10-01 2,585
2021-11-01 2,529
2021-12-01 2,606
2022-01-01 2,819
2022-02-01 2,602
2022-03-01 3,137
2022-04-01 3,066

Top Refinance Reverse Mortgage Lenders

Here is a list of the top lenders by origination totals since 2015:

Rank Lender Total Refis
1 AMERICAN ADVISORS GROUP 10,490
2 REVERSE MORTGAGE FUNDING LLC 4,118
3 NATIONWIDE EQUITIES CORPORATION 3,123
4 PHH MORTGAGE CORPORATION 2,782
5 FINANCE OF AMERICA REVERSE LLC 2,673
6 SOUTH RIVER MORTGAGE LLC 2,429
7 HIGH TECH LENDING INC 1,868
8 ADVISORS MORTGAGE GROUP LLC 1,836
9 MUTUAL OF OMAHA MORTGAGE INC. 1,778
10 ENNKAR INC. 1,767
11 LONGBRIDGE FINANCIAL LLC 1,290
12 INTEGRITY 1ST MORTGAGE INC. 1,149
13 GOLDEN YEARS MORTGAGE SOLUTIONS 1,009
14 OPEN MORTGAGE LLC 1,005
15 RESOLUTE BANK 962
16 THE FEDERAL SAVINGS BANK 951
17 FAIRWAY INDEPENDENT MORTGAGE CORPORATION 778
18 AMERICAN FINANCIAL NETWORK INC 764
19 AMERICAN FINANCIAL MORTGAGE SERVICES IN 726
20 PREMIUM SECURITY INC. 657
21 FINANCE OF AMERICA MORTGAGE LLC 624
22 LIBERTY HOME EQUITY SOLUTIONS INC 588
23 DYJERO CORPORATION 561
24 NET EQUITY FINANCIAL INC 525
25 CHERRY CREEK MORTGAGE LLC 514

Click here to get more information about refinancing a reverse mortgage and speak to a specialist, absolutely free.

More Resources

Underwriting: HECM-to-HECM Refinances – very helpful to us, though perhaps too technical for the average consumer

HUD: Refinancing Existing HECMs – guidance from HUD to lenders, this is a Word document rather than a webpage