As you shop around for a reverse mortgage loan refinance, you’ll notice that terms and fees can vary widely.
It’s important to understand exactly why you’re seeing those differences. Does one lender really have lower fees, or is the company rolling some of the costs into your loan balance?
“Some lenders will cut the upfront costs in return for a higher interest rate,” says Steven Sass, an economist with the Center for Retirement Research at Boston College.
An example: If you’ll take a higher rate, your lender might be willing to waive its origination (processing) fee, says Mary Jo Lafaye, a reverse mortgage loans specialist with Retirement Funding Solutions in San Diego.
If your refi involves switching to a reverse mortgage line of credit, note that the credit line will grow if interest rates rise, and those adjustments can come annually or even monthly.
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You’ll get a credit on your loan insurance
Most reverse mortgage loans are insured by the Federal Housing Administration under its home equity conversion mortgage (HECM) program. The FHA offers consumer protections, including the promise that you’ll never owe more than your home is worth at the time the loan comes due.
The counseling is available face-to-face or by phone and typically costs about $125, though it may be offered free of charge to lower-income borrowers.
In some instances, refinancers are allowed to skip this step. But that can be a bad idea. The rules governing reverse mortgage loans are intricate, exacting and constantly changing. Even lenders and industry experts find it challenging to stay current.
The counseling session is a good opportunity to get briefed on what’s new since you got your first loan, says Brian Sullivan, a HUD spokesman. It’s also a chance to ask lots of questions and run the details of your new deal past a neutral third party.
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Sometimes a refi isn’t the best move
If your home has increased a great deal in value, you might think that refinancing your reverse mortgage loan is to your advantage.
However, a refi may not be the way to go if you might ever want to sell the home and downsize to something smaller. The loan would need to be paid off.
Instead of refinancing, here’s an option you’d want to keep in your back pocket: You could eventually sell, pay off the reverse mortgage loan and use any remaining profits plus another reverse mortgage to purchase your next home.
As with any other HECM loan, you still cover the property taxes, homeowner’s insurance and maintenance costs. But you live free of mortgage payments and pay off the loan when you sell, no longer occupy the home as your primary residence or can no longer meet the loan terms.