Can You Refinance a Reverse Mortgage?

It is possible to refinance a reverse mortgage, and with home values going up in many areas across the country, it may even make good financial sense. The key is to ensure you’re getting a better deal with the refinance when closing costs and interest rates are factored in. 

Learn more about the eligibility requirements to refinance a reverse mortgage, the process, and the pros and cons of refinancing a reverse mortgage. 

Can a reverse mortgage be refinanced? 

Yes, a reverse mortgage can be refinanced, and there are often many good reasons to do so. You may want to consider refinancing a reverse mortgage if:

• Your home’s value has increased: If your home’s value has increased significantly because of market fluctuations, a refinance may help you take advantage of untapped equity. 
• Lenders offer lower interest rates: Market rates fluctuate due to various variables. Should rates drop significantly, you may qualify for cheaper financing. 
• You want to add your spouse to the loan: If your current spouse wasn’t on the original loan, you may want to consider refinancing to ensure there aren’t any disputes in the future should you pass away unexpectedly.
• You want to switch interest rates: If you have an adjustable-rate mortgage and want to switch to a fixed interest rate, you’ll need to refinance your current mortgage for those changes to take effect. 

Am I eligible to refinance a reverse mortgage?

You’ll need to meet a few eligibility requirements to refinance your reverse mortgage, just as you did with your original reverse mortgage. These include:

• Home must be your primary residence: If it’s a second home or an investment property, you won’t be able to refinance it. 
• You must be 62 or older: Reverse mortgages are only available to seniors. You may encounter a few roadblocks if you’re a surviving spouse and under 62 years of age.
• You must not be delinquent on any federal loan debt: Whether it’s income taxes or federal student debt, all federal debts must be current. If you’re behind on any federal debt, you must catch up on any missed payments before applying to refinance your reverse mortgage. 
• Must have a steady source of income or prove you are financially stable: To get a reverse mortgage, you must be able to stay up to date with property taxes, insurance, and routine maintenance. 
• Have enough equity in the home: To qualify, you must own the home and have a low mortgage balance.  

How to refinance a reverse mortgage 

Expect to follow these steps when applying to refinance an existing reverse mortgage.

1. Research lenders: Not all lenders offer reverse mortgage refinances. Find out which ones do, and then compare fees and customer ratings. 
2. Gather paperwork and submit a formal application: Reverse mortgage refinances differ slightly from other loans you may have taken out. While it depends on the lender, you’ll likely need to show:

• Proof of income
• Reverse mortgage loan counseling certificate
• Proof of address
• Government-issued ID

Once you have all of the appropriate paperwork, go ahead and apply with your chosen lender.

3. Review the loan agreement: Once approved for a reverse mortgage refinance, review the loan terms within the agreement. If you have any questions, speak with a loan officer.
4. Close: Schedule a closing date with your lender, where you’ll sign various closing documents and complete the reverse mortgage refinance.
5. Receive funds: Once you’ve closed, you should receive any funds from your new reverse mortgage. Before closing, you must specify with your lender how you would like to receive your new funds. Options include a lump sum, monthly payments, or a line of credit. 

Pros and cons of refinancing a reverse mortgage 

There are advantages and disadvantages to consider before deciding to refinance a reverse mortgage. 

Pros

• More funds

  Refinancing a reverse mortgage may give you access to more funds, which you can access through a lump sum, monthly payments, or a line of credit.

• Lower interest rate

  You may receive a lower interest rate by refinancing your reverse mortgage. While you don’t have to make any payments until the home is sold or you pass away, the lower interest rate may increase the amount of money your beneficiaries receive if any money is left over after the lenders have been repaid.

• Switch interest types

  Refinancing your reverse mortgage can allow you to switch from a fixed interest rate to an adjustable rate and vice versa.

• Consolidate debt

  You can use the money from a reverse mortgage to pay off accumulated debt. The refinanced reverse mortgage must not be repaid until the home is sold or you pass away.

Cons

• It’s not free

  There are fees involved with refinancing. With closing costs and loan origination fees, the benefit of refinancing may be outweighed by the costs.

• There are eligibility requirements

  You’ll need to meet home equity requirements and age requirements and be able to show you are financially stable. Compared to other loan types, reverse mortgages have a few more hoops to jump through. Some lenders even require you to take a counseling course.

• Smaller inheritance for beneficiaries

  Reverse mortgages reduce the money your beneficiaries receive once you die and the home is sold. Tapping into your equity even more with a new reverse mortgage reduces it further.

Should I refinance my reverse mortgage?

If …	Consider refinancing your reverse mortgage?
Your equity or home’s value has increased significantly	✅
If you are younger than 62	❌
If interest rates have dropped	✅
Your financial situation hasn’t changed	❌
You want to switch interest types	✅
You don’t plan on staying in the home much longer	❌
You need to consolidate debt	✅
Closing costs and fees aren’t significantly diminished by the benefits of refinancing	❌

✅ Your equity or home’s value has increased significantly

If market conditions and other factors have changed since the first time you took out a reverse mortgage, it may be to your benefit to refinance. This way you may access more funds each month and better loan terms.

❌ You are younger than 62

Refinancing will be very difficult if your spouse had a reverse mortgage before they passed away and you currently don’t meet the age eligibility requirements. It may be in your best interest to sell the home. 

At the very least, you should be able to stay in the home as long as you can keep up with insurance, property taxes, and maintenance. 

✅ Interest rates have dropped

Any money received via a reverse mortgage is added to the remaining loan balance. If you plan on moving, it’s possible to pay off the remaining loan balance plus any funds received through the reverse mortgage once the home is sold. 

❌ Your financial situation hasn’t changed

If there has been no change in your financial situation, it may not be in your best interest to refinance your reverse mortgage. You should only consider refinancing a reverse mortgage if the benefits outweigh the costs.  

✅ You want to switch interest rates

If you have an adjustable-rate mortgage, refinancing can help you switch to a fixed rate. This is especially beneficial if rate forecasts predict rate increases for the foreseeable future. 

❌ You don’t plan on staying in the home much longer

There are costs associated with refinancing. If you’re not going to stay in the home long enough for the higher monthly return to outweigh the costs of refinancing, then it’s unlikely that refinancing your reverse mortgage would benefit you.

✅ You need to consolidate debt

If you’ve taken on additional debt since your first reverse mortgage, refinancing your reverse mortgage may make sound financial sense, especially if there is a large discrepancy between interest rates.

❌ Closing costs and fees aren’t significantly diminished by the benefits of refinancing

While you may see a difference in funds by refinancing your reverse mortgage, it’s likely not worth your while unless your home’s value has increased significantly. The fees to refinance can be significant, so calculate your break-even point to see if it’s worth it.  

Ask the expert

Crystal Rau

CFP®

A good candidate for reverse mortgage refinancing would be someone with limited or uneven retirement income. It is also someone who doesn’t care about leaving their home to their beneficiaries. If somebody already has a reverse mortgage, it certainly makes sense to refinance if interest rates are lower. It would be beneficial to get additional equity out, assuming the fees don’t eat into that equity too much. However, this is not recommended very often as it only benefits those who don’t have a lot saved outside of their primary residence.

Alternatives to refinancing a reverse mortgage

In considering whether to refinance a reverse mortgage, it’s worth considering alternative financial products, too. These can offer benefits that may better suit your needs, finances, and long-term goals. 

Each alternative below brings different advantages and disadvantages compared to refinancing a reverse mortgage.

Sell your home

If you’ve built up significant equity in your home, selling it could provide a considerable lump sum. Refinancing a reverse mortgage, of course, maintains home ownership and provides income over time. 

Selling means saying goodbye to your home and possibly uprooting your life. As a downside compared to refinancing, it comes with costs, such as commission to real estate agents and capital gains tax implications.

Home equity loan or line of credit

Consider a home equity loan or line of credit (HELOC) if you want to tap into your home’s value without selling it. Unlike reverse mortgage refinancing, you must repay these loans over time, leading to monthly payments. They can offer lower interest rates than reverse mortgages, which may save you money in the long run.

Personal loan

A personal loan can provide quick cash without affecting your home equity. However, unlike refinancing a reverse mortgage, personal loans tend to have higher interest rates and shorter repayment timelines. These loans depend on your creditworthiness and income.

Downsize

Downsizing—selling your current home to buy a smaller, less expensive one—differs from refinancing because it releases a portion of your home’s equity. 

The benefit is you will have a smaller or possibly no mortgage. However, moving to a new home has drawbacks, including potential transaction costs and emotional ties to your current home.

Rent out a part of your home

Rather than refinancing the reverse mortgage, consider creating an extra income source by renting out part of your home. The income can help you meet expenses, but you’ll have less privacy and potential landlord responsibilities.

Seek government and community assistance programs

Numerous government and community programs can help homeowners in need, unlike refinancing, where you rely on equity and interest rates. 

These could include property tax deferrals or energy assistance programs. However, they’re often income-based and have eligibility requirements.

Access life insurance policy loans or withdrawals 

You could take a loan or withdraw funds if your life insurance policy has built up cash value. This differs from refinancing because you’re tapping into a different asset. As a disadvantage, it reduces the death benefit your heirs will receive.

Financial planning and budget adjustments 

This alternative involves managing current finances and adjusting spending habits, unlike refinancing a reverse mortgage, which requires a lengthy loan process. 

The drawback is it could involve reducing some of your lifestyle expenses, and the upside is that it can help make your money go further without the need for extra loans.