reverse loans san fernando valley

Refinancing a Reverse Loan

Like any other mortgage, there may be a time when it’s optimal to refinance a reverse loan due to a drop in interest rates, increased home value or that the borrower is several years older than when they did their original reverse mortgage.

As of this posting, interest rates have decreased and many reverse loan borrowers are being solicited to refinance their current loan into a new one, however, there are some guidelines that have to be followed and not every borrower will pass them.

There has to be a tangible benefit to the homeowner to refinance their reverse loan and at the same time protect them from being taken advantage of and being charged unnecessary fees.

Regulations are in place to protect seniors from being taken advantage of and this has resulted in 3 “tests” to determine whether or not it would be beneficial for the borrower to refinance their current loan into a new one.

The borrower must pass 2 out of the 3 tests to be considered eligible to refinance their existing mortgage and if they do, they can apply for the new mortgage.

There is a”seasoning’ requirement and this means the loan has been in place for not less than 18 months from the time it was originated, funded and closed. Otherwise, the borrower will have to wait, although there are some exceptions to this, that could be discussed in an additional post.

  1. Closing Cost Test.   The increase in available loan proceeds must exceed five (5) times the total closing costs amount  This is the “benefit factor.”

2.  Loan Proceeds Test.  For any reverse mortgage refinancing the available Benefit Amount from the new HECM is the amount of the Principal Limit available to the borrower MINUS the HECM loan balance being paid off and the Closing Costs for the new mortgage.   This must equal or exceed 5% of the HECM Refinance Principal Limit.

3.  Rate Reduction Benefit Test.  The borrower must recover the total costs of the new loan through savings in the annual interest rate charged on the new loan within 4 years.

Confused?  Of course and the only way a borrower can find out if they would qualify for a refinance would be to provide a complete copy of their most recent mortgage statement to a reverse loan professional and have them do the calculations for you.

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Over the years I have refinanced many of my former clients, but they all have to pass the tests and most of the time they do.   If they wish to refinance into a Jumbo/Proprietary reverse loan, that can be done too, and the qualifying tests are very similar.

When in doubt, call your loan professional and ask them.   It might be a benefit to you at this time while the interest rates are so low and you might be entitled to more of your equity and increased cash flow.

 

 

 

 

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Money From Jumbo Reverse Loans

California obviously has the most expensive properties in the country and a very high rate of citizens who are seniors but are carrying mortgages on their homes which are preventing them from retiring due to mortgage debt.

Many working seniors would like to retire but they can’t because of the ongoing mortgage payments and sometimes they find themselves withdrawing funds from their retirement investments to make the payment each month.

And depending on how many years are left on the mortgage, many are concerned about running out of money to make the payments and the other monthly obligations.

The average home value in California generally exceeds the HUD Lending Limit that is currently at $679,650 and if a homeowner has a home with a great deal more equity than the FHA HECM would allow them to withdraw, then a Jumbo reverse loan would be an additional option for consideration.

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There are many new Jumbo loan programs to choose from that are superior to the FHA HECM in many aspects and are considerably less expensive in regards to fees.   Here are some highlights and are subject to change in the future.

  • Maximum loan amounts to 4 MM
  • Fixed rates or a LOC
  • 2nd T.D’s for those who would like access to their equity but currently have a 1st T.D. in place with a favorable interest rate they wish to keep, preserving more of their equity.  This option can also be used as a 1st T.D.
  • Origination fees vary by the loan choice but are “none” to either 6K or 8K maximum.
  • No Mortgage Insurance Premiums.
  • Non-Recourse Loan.    The borrower continues to own their home.  No equity sharing or pre-payment penalties.  The property will go to the heirs of the borrowers when they  (the borrowers) have passed away.
  • Can be used to purchase a home.  “Right-Sizing/Down Sizing”.
  • No payments are required other than the borrower must continue to pay property taxes, Homeowners Insurance, and HOA fees and keep the property well maintained.
  • No loan terms.
  • Borrowers must be at least age 60 or 62.   It depends upon the loan choice to determine the minimum age.
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