The process of refinancing a reverse mortgage is similar to that of traditional refinance. There are standard eligibility criteria set by mortgage lenders and certain steps to be followed.
In most cases, it helps stabilize the financial situation. However, it has consequences as well. So, understanding the basics of refinancing your Texas reverse mortgage loan will help you decide whether it fits your financial needs.
Major Reasons To Refinance a Reverse Mortgage
A reverse mortgage is a home loan provided to homeowners who are 62 or older, which helps them convert their home equity into cash. People usually use this to supplement their retirement income or meet unexpected surplus expenses. Though there are different types of mortgages, the Home Equity Conversion Mortgage (HECM) is the most preferred reverse mortgage as the federal government insures it.
However, certain reasons lead the homeowner to mortgage refinance. Here are some of the major reasons:
To Change Rates and The Way You Receive Money
In a reverse mortgage, the way you receive money is determined by the type of rate you have chosen. While homeowners with a fixed rate receive a large one-time payout, people with adjustable rates can choose between monthly payments, a line of credit, or a combination of the two.
So, homeowners can refinance if they wish to change their rates. This will help you determine how you receive the money and meet the sudden demand for money with fixed rates or meet regular budget requirements with an adjustable rate.
To Get a Lower Interest Rate
Although most homeowners benefit from the financial flow offered by reverse mortgages, the interest rates affect your loan balance. Mortgage lenders often add the monthly interest rate to the principal amount, increasing the loan balance and decreasing the home equity.
However, the interest rates of the mortgages fluctuate. Therefore, if the interest rate of the mortgage reduces significantly since the loan was taken, you can choose to refinance. This will help you lower the amount of interest added to the principal amount and slow down the diminishing home equity.
To Change the Type of Mortgage
You can also go for a mortgage refinance if you want to change your mortgage type. You can change to single-purpose, proprietary, or traditional mortgages based on the change in your financial situation. While single-purpose reverse mortgages are offered by state and local government agencies or nonprofit organizations and provide smaller amounts meant for specific purposes, private lenders offer proprietary reverse mortgages, allowing homeowners to borrow above FHA limits.
This often helps you meet higher cash requirements than what the usual mortgage provides. However, you can change to traditional mortgages if you intend to retain your home’s equity.
Increase in Home Value or Local HCEM Limit
People will also choose a reverse mortgage to refinance if the home value or the local HCEM limit increases. This will help you access more of your home equity or borrow more money based on your change in needs.
How to Refinance a Reverse Mortgage
The process of refinancing a reverse mortgage is similar to that of a traditional loan. However, the eligibility criteria changes based on the mortgage or loan you are refinancing to. So here are the basic steps involved in process:
1. Check your eligibility
Make sure that you meet the mortgage requirements put forth by your mortgage lender. Depending on the type of mortgage you are applying for, you should meet the FHA requirements or the requirements of mortgage lenders in Texas.
2. Compare offers
Before choosing the mortgage, check for all possible mortgage options. Compare offers and terms of payment by a number of lenders in your town and choose the one that best suits your financial situation.
3. Get a home appraisal to verify your home’s value
Before accepting the mortgage offer, get a home appraisal to know the exact value of your home. This will help you determine the amount you can borrow and let you get a better offer from the Texas mortgage lenders.
4. Apply for the loan
Once you have chosen a mortgage lender, apply for the loan along with the necessary financial and property credentials.
5. Underwriting
If the loan is approved, then the underwriting process will begin. Your lender might ask you for additional information on the property or a home appraisal during this process. Furnish the necessary details and finish the underwriting.
6. Close your refinance
After the underwriting process is complete, review the final loan documents and close the refinance of the reverse mortgage. At this stage, you will have to pay the necessary fees and review your final figures on the loan document.
Merits and Demerits of Refinancing a Reverse Mortgage
Before deciding to refinance your reverse mortgage, you should go through both the pros and cons listed below:
Pros
- Mortgage refinance may help you decrease the loan’s interest.
- Helps you change the rate and payment option.
- Slows down the diminishing home equity.
- Offers access to more home equity.
Cons
- Needs additional fee payment.
- It is difficult to qualify for mortgage refinance.
- It may increase the debt amount or make paying back the loan more difficult in the long run.
Conclusion
Sufficient research and planning are required before refinancing a reverse mortgage. The process is similar to a traditional loan, but the eligibility criteria changes based on the mortgage or loan you are planning to refinance.
So, if you are thinking about refinancing your reverse mortgage, consider the points mentioned above and thoroughly evaluate the pros and cons. If you need further assistance, contact Lone Star Financing, a trusted Texas mortgage lender!
We can help you with all kinds of mortgages and mortgage refinance. Call us today or apply online to learn more about our customized services.
