December 1, 2003, Revised January 26, 2010, January 15, 2013, March 8,
“Is it possible to increase the amount I can draw on my FHA reverse
mortgage by refinancing?”
Possibly. Whether you should is another question, because you have to
incur another set of closing costs. The mortgage insurance cost,
however, instead of being levied against the total value of your
property, will only apply to the value increase. If your house
appreciated from $100,000 to $150,000, for example, the 2% insurance
premium would be paid only on the $50,000.
When you consider a refinance, focus on two numbers: the increase in
credit line from the previous HECM, and the refinance cost.
If it costs $8,000 to refinance and your credit line rises by $40,000,
you probably want to do it. If it costs $8,000 but your credit line
rises only by $4,000, you probably don’t. But you might, if you have
zero interest in the size of your estate.
The additional amount you can draw if you refinance depends on how much
of your equity in the house you have already used, the extent to which
your property value has changed since you took the original, interest
rates now relative to then, and whether or not your original property
value was higher than the FHA loan limit then. If that was the case, subsequent increases in the loan limits will
increase the amounts you can draw under a refinance.
Under the law, the reverse mortgage loan provider must provide you with
the total cost of the refinancing, and the increase in the amount you
can draw. The counseling requirement is waived if the increase in the
amount you can draw is at least 5 times as large as the refinancing
cost, and less than 5 years have expired since the original transaction.
Note: If you want to see how much you can draw on a refinance, based on
the best prices offered by the lenders I have certified, click
To compare a modification of an existing HECM with a refinance, go to
Spreadsheets and scroll down to
Assessing the Status of a HECM Reverse
Mortgage, and Opportunities to Modify it or Refinance it.