Issue 34.17
Everyone who has a HECM (or reverse) mortgage loves the fact that they don’t have to make mortgage payments for as long as they live in their home. What most people don’t realize is that in an appreciating housing market such as the one we have seen over the past seven years, it could be a very smart idea to refinance your reverse mortgage and take out even more cash to live on. If you don’t, you could be giving some of your home’s appreciation to the lender instead of using it to fund your retirement.
The amount of money you can borrow using a HECM loan is determined by the value of your primary residence and your age. The higher your home’s appraised value and the older you are, the more you can borrow. For the past six or seven years, home values have been going up, and, like it or not, we’ve all been getting older. The combination of these two factors makes it possible to refinance your home and potentially take out a larger portion of your home’s appreciated value.
The window of time to refinance your HECM loan doesn’t last forever. In an appreciating home market, the window to refinance typically lasts 4 to 9 years. During that time, your home actually increases in value faster than your mortgage. When your mortgage begins to grow so rapidly that it exceeds the amount that you can borrow on a new loan, the chance to refinance is lost. Since home appreciation is one of the factors that creates the refinance window, a decrease in housing market conditions could rapidly close the window with little or no warning.
There are two very important rules that protect you from losing money by constantly refinancing your home.
1) Your home must have appreciated at least 5% since obtaining your current HECM loan and
2) the value you receive from refinancing must exceed 5 times the amount of your closing costs.
The ability to refinance may not be available to everyone. There are several different HECM loan programs and every loan is unique to the borrower’s special circumstances. To see if you qualify, give me a call at 435-669-0009. In most cases it takes less than 15 minutes to see if refinancing your HECM loan is a good idea and the information is free.
Veritas Funding (NMLS#25108) is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to owner/property qualification.