Can You Refinance a Reverse Mortgage?

Can You Refinance a Reverse Mortgage?

It is possible to refinance a reverse mortgage. A reverse mortgage is a home loan for homeowners who are at least 62 years old and have significant home equity. It converts a portion of that equity into cash—and the homeowner doesn't have to make monthly payments or sell their home. The loan is due when they move, sell the property or pass away.

Homeowners who already have a reverse mortgage may want to refinance to a new reverse mortgage or a traditional home loan. Either way, the process involves taking out a new loan to absorb your current mortgage.

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Why Would You Refinance a Reverse Mortgage?

Whether you should refinance a reverse mortgage depends largely on your financial goals, property value and interest rate. Here are some situations where refinancing might be a good fit.

Home Value Appreciation

As your property value increases, your home equity will increase along with it. That could come in handy if you're planning to refinance to a new reverse mortgage because it increases your borrowing power: The amount you can borrow with a home equity conversion mortgage (HECM) is determined by your appraised home value and the annual HECM lending limit ($1,249,125 for 2026). The Federal Housing Administration (FHA), which insures these mortgages, will use whichever amount is lower.

Lower Interest Rates

If mortgage rates are on the decline, refinancing a reverse mortgage could get you a lower rate. That can reduce the total amount that's due at the end of the loan term. Remember that the loan must be repaid when you move out, sell the home or pass away. Having a lower loan balance can leave your heirs with more equity, which might allow them to settle the debt without having to sell the home.

Adding a Spouse

Spouses must be 62 or older to be listed as a co-borrower on a reverse mortgage. If your spouse has crossed that threshold, refinancing can allow you to add them to the loan.

Just be aware that adding them as a borrower isn't always required. An eligible surviving spouse can continue living in the home after the primary borrower passes away—assuming they were legally married from the start and disclosed the relationship, and the surviving spouse retains the home as their primary residence.

Changing Payout or Loan Types

When you take out a reverse mortgage, you can receive loan proceeds through:

• A lump sum
• Monthly payments
• A line of credit

One benefit of refinancing is that you can change the structure of your reverse mortgage. For example, you might want to switch from a lump sum to a line of credit, which allows you to borrow on an as-needed basis.

Removing Set Asides

With a traditional mortgage, the lender usually requires borrowers to prepay a portion of their property taxes and homeowners insurance. This money is held in an escrow account. An HECM lender may require a Life Expectancy Set Aside (LESA) to essentially serve the same purpose. In this case, they'll earmark a portion of your loan proceeds and set it aside in a separate account.

This might happen if you had inconsistent income or weak credit when you took out your original reverse mortgage. But if you're on stronger financial ground now, refinancing might allow you to remove this requirement.

Requirements to Refinance a Reverse Mortgage

Refinancing requirements depend on whether you're seeking a new reverse mortgage or switching to a traditional mortgage. If it's the latter, lenders will consider your income, assets, credit score, debts, employment status, home equity, home value and your payment history on your existing loan.

But you can expect the following requirements when applying for a new HECM:

• Age: All borrowers must be 62 or older.
• Primary residence: You can't get a reverse mortgage on a vacation home or investment property.
• Sufficient equity: The FHA does not have a minimum home equity requirement, but you'll likely need significant equity.
• Financial resources: Lenders want to see that you have the means to cover property taxes, home maintenance costs and homeowners association fees (if applicable). You'll also need to meet FHA financial assessment and creditworthiness standards.
• Meeting with a HUD-approved HECM counselor: The Department of Housing and Urban Development (HUD), which backs HECMs, requires this counseling session for all HECM borrowers.
• Property eligibility: The property must be a single-family home, a two- to four-unit property with the borrower occupying one unit, an FHA-approved condo or a qualifying manufactured home.
• Net tangible benefit test: You can refinance if doing so will improve your financial health in a measurable way. That may be the case if your home value has increased, you qualify for a lower interest rate, or you want to add a spouse as a co-borrower.

Options for Refinancing a Reverse Mortgage

There are three main options when refinancing a reverse mortgage. The right one for you will depend on your finances, goals and personal situation.

HECM-to-HECM Refinance

HECMs are the most common type of reverse mortgage. An HECM-to-HECM refinance essentially swaps out your existing reverse mortgage for a new one. This can be a good option if you want to keep this loan structure. Refinancing can allow you to benefit from lower interest rates, add a spouse to your account, access more home equity or change the way you receive loan proceeds. Just be aware that you'll have to meet the same eligibility requirements outlined above.

Proprietary (Jumbo) Reverse Mortgage Refinance

HECMs come with an annual borrowing limit. If you have substantial home equity and want to borrow beyond this amount, a proprietary (jumbo) reverse mortgage refinance might be your best bet. Your new loan will be from a private lender—and not insured by the FHA. Eligibility criteria also varies from one lender to the next. You can contact your state's housing agency for more information.

Conventional Forward Mortgage Refinance

This may be your best option if you no longer want a reverse mortgage. Perhaps your financial situation has changed—or you want your heirs to have more home equity when you pass away. After refinancing to a conventional loan, you'll have a regular monthly mortgage payment. That can allow you to gradually pay down your balance and build home equity month after month.

Pros and Cons of Refinancing a Reverse Mortgage

Refinancing a reverse mortgage doesn't make financial sense for everyone. Here are some important things to consider when weighing your options.

What to Consider Before Refinancing a Reverse Mortgage

Deciding to refinance a reverse mortgage can have its benefits, but there are other important things to think about.

• Closing costs and fees: This can add up to a significant expense—and might outweigh the financial benefits of refinancing. Be sure to compare lenders and understand all fees and closing costs before moving forward.
• The "5 times" rule: To forgo the mandatory counseling session required by HUD, the refinance must increase your borrowing power by at least five times the amount of total closing costs.
• Interest rate changes: If rates are on the rise, refinancing a reverse mortgage could result in a higher interest rate. That could cause your total balance to grow at a faster clip.

How to Refinance a Reverse Mortgage

If you decide an HECM-to-HECM refinance is right for you, here's what that process would look like.

1. Review Your Current Loan

That includes your interest rate, loan balance and how much home equity you have. You'll also want to consider how long you plan on staying in the home. If you see yourself moving at some point, be aware that your reverse mortgage loan balance will be due at that time. Also think about your estate plan and the inheritance you plan on leaving for your heirs. Looking at all these factors can help you determine if refinancing to a new HECM makes sense.

2. Attend HUD-Approved Counseling

This involves meeting with an approved counselor who will help you determine whether this type of reverse mortgage is in your best interest. If not, they may recommend other resources like government assistance programs. You can expect the counselor to explain how an HECM works, the pros and cons for your unique situation, and how it will affect your taxes.

3. Complete a Financial Assessment

During this time, the lender will look at your:

• Credit history
• Property tax and homeowners insurance payment history
• Income
• Whether a Life Expectancy Set Aside is necessary

4. Order a Home Appraisal

This is to ensure that the home meets the property criteria set forth by the FHA. The appraiser will also look for any safety concerns or repairs that need to be addressed. These details will help them determine the home's value, which will influence how much you can borrow.

5. Underwriting and Approval

During underwriting, the lender will review your loan application, including your financial assessment and home appraisal. They may request additional documentation if they have follow-up questions or concerns. The timeline will depend on the lender, but some are able to complete reverse mortgage applications within 30 to 45 days.

6. Close the Loan and Receive Proceeds

If your loan is approved, you'll pay your closing costs and finalize your new mortgage. Your loan proceeds should be disbursed soon after, often within a few business days. You might receive your funds as a lump-sum payment, recurring monthly payments, a line of credit or a combination of monthly payments and a line of credit.

Alternatives to Refinancing a Reverse Mortgage

If a reverse mortgage doesn't feel like the right option, consider these alternatives:

• Cash-out refi: A cash-out refinance replaces your HECM with a traditional home loan that's greater than your outstanding balance. You can then keep the difference as a cash payment.
• Home equity loan or line of credit: This allows you to borrow against your home equity in different ways. With a loan, you'll receive an upfront lump-sum payment that you'll repay over time. A line of credit allows you to borrow on an as-needed basis. Both use your home as collateral.
• Government assistance programs: That may include property tax relief at the state level, Supplemental Security Income (SSI) or supplemental nutrition assistance.
• Moving to a less expensive home: In some cases, you may decide to sell your home and downsize to something more affordable. That could reduce your housing costs and allow you to leave a greater inheritance for your heirs.

Frequently Asked Questions

The Bottom Line

It's certainly possible to refinance a reverse mortgage, whether that involves taking out a new reverse mortgage or replacing your original loan with a conventional home loan. You'll need to satisfy the lender's eligibility requirements either way. But be aware that reverse mortgages generally have stricter criteria. No matter what you choose, your credit health will be a key factor. You can check your credit scores and credit report for free from Experian.