Can a HECM Be Refinanced?

December 1, 2003, Revised January 26, 2010, January 15, 2013, March 8, 2017

“Is it possible to increase the amount I can draw on my FHA reverse mortgage by refinancing?”

Possibly. Whether you should is another question, because you have to incur another set of closing costs. The mortgage insurance cost, however, instead of being levied against the total value of your property, will only apply to the value increase. If your house appreciated from $100,000 to $150,000, for example, the 2% insurance premium would be paid only on the $50,000.

When you consider a refinance, focus on two numbers: the increase in credit line from the previous HECM, and the refinance cost. If it costs $8,000 to refinance and your credit line rises by $40,000, you probably want to do it. If it costs $8,000 but your credit line rises only by $4,000, you probably don’t. But you might, if you have zero interest in the size of your estate.

The additional amount you can draw if you refinance depends on how much of your equity in the house you have already used, the extent to which your property value has changed since you took the original, interest rates now relative to then, and whether or not your original property value was higher than the FHA loan limit then. If that was the case, subsequent increases in the loan limits will increase the amounts you can draw under a refinance.

Under the law, the reverse mortgage loan provider must provide you with the total cost of the refinancing, and the increase in the amount you can draw. The counseling requirement is waived if the increase in the amount you can draw is at least 5 times as large as the refinancing cost, and less than 5 years have expired since the original transaction.

Note: If you want to see how much you can draw on a refinance, based on the best prices offered by the lenders I have certified, click HERE. To compare a modification of an existing HECM with a refinance, go to Spreadsheets and scroll down to Assessing the Status of a HECM Reverse Mortgage, and Opportunities to Modify it or Refinance it.

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