![]() ![]() The costs you must incurare all the same costs as when you got your first reverse mortgage (title, escrow, appraisal, origination fee, etc.) except for one big difference…the mortgage insurance calculations. If the new loan does not give the borrower at least 5 times the costs in additional cash (above and beyond any money still available to the borrower on the existing loan), the borrower does not meet the requirements and the lender will not grant the loan unless the borrower is adding a spouse who was not previously eligible or is significantly lowering their accrual rate.Ī good way to illustrate this is that if all the costs for the new loan would total $10,000, then the borrower would have to net $50,000 more on the new loan (there is a formula that the lenders must follow per HUD guidelines which also accounts for servicing set-asides but for simplicity sake, this is a simplification of the policy). Then the borrower must receive at least this 5 times amount or more of money with the new loan. To determine if a borrower meets HUD’s 5 times rule, you must take all the costs incurred to close the new loan and multiply those by 5. The five times benefit rule is in effect for both HUD and jumbo loans and is in addition to the 10% additional Principal Limit requirement that HUD imposes if you do not meet one of the exceptions. There is a 12-month minimum time between loans before you can apply refinance your current reverse mortgage with a new reverse mortgage.Īlso See: HUD mortgagee letter regarding 5x benefit rule Such a case would be adding a non-borrowing spouse protection to your loan.Īnother example is when the new loan would drop the accrual rate by a large amount, saving the borrowers thousands in interest accrual within the next 5 years (and even more over a longer period). ![]() Preferably your interest rate or margin should be improved, but in a rising interest rate market, this is not necessary.Įxceptions may be made when the loan itself protects or significantly benefits the borrowers. This would mean that if your Principal Limit is $300,000, you would have to receive at least $30,000 in new proceeds from the refinance loan in addition to the new proceeds being at least 5 times the costs of the loan. To meet the test, you must receive at least 10%of the new principal limit in additional reverse mortgage proceeds for the HUD HECM to HECM refinance. The rule is explained below, and it protects borrowers from equity stripping, which are constant refinances that do not benefit the borrower but accrue fees. This rule exists for both HUD and for proprietary or jumbo loans. HUD generally requires borrowers to pass a “5-times benefit rule” to qualify to refinance a reverse mortgage with a new reverse mortgage. If the loan is not beneficial for you, instructs lenders not to complete the loan but there is more latitude regarding what constitutes “beneficial” when you are adding a previously ineligible spouse or drastically benefiting your circumstances.īoth the HUD program and the private programs require you to have a significant equity position in your home to do a refinance of a reverse mortgage. In addition to possibly receiving more cash, you may be able to get a lower rate, possibly a lower margin and maybe even eliminate a fee such as a servicing fee which lowers the interest that you accrue over time. ![]() The loans borrowers closed with younger borrowers prior to 2015 must be repaid when the older spouse passes or is no longer living in the property.īy refinancing these loans with today’s HUD guidelines, younger spouses would not have to refinance the loan or be forced to move when the older spouse passes if they do not have the means to refinance.Įven if that younger spouse is still under 62 years old, the couple can refinance the loan if they qualify under the current HUD program parameters using the “eligible non-borrowing spouse” designation.Īs an eligible non-borrowing spouse, the younger spouse may remain on title and can also stay in the home for life under the terms of the existing loan without having to make a mortgage payment – even if the older spouse should predecease the younger spouse.īorrowers looking to refinance with the sole motivation of a lower interest rate may be disappointed but for some borrowers with high exiting rates, mortgage insurance renewals and servicing fees, there may be a good opportunity at this time. How refinancing can protect a non-borrowing spouseĬouples often removed a younger spouse from title prior to 2015 to close a reverse mortgage when one of the two spouses were not yet 62 years of age. ![]()
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