HECM to HECM refinance
What is a HECM to HECM Refinance?
A HECM to HECM refinance (also known as a H2H Refi), occurs when the borrower is paying off an existing HECM with a new HECM.It is a simple reset of an existing reverse mortgage. This becomes a valuable tool when home values rise dramatically giving the homeowner access to additional equity, there is a need to change the interest rate, or the homeowner would like to add another person to the mortgage such as a new spouse or qualifying family member.
These reverse mortgages are a little different from traditional HECMs that pay off existing forward liens. HUD has strict rules for the refinance so that borrowers have a net benefit from the refinance.
Why would someone refinance their HECM anyway?
The HECMs with Adjustable Rate Mortgages (HECM ARMs) have a built-in disincentive to refinance – the borrower’s net principal limit (how much they can borrow) continues to grow over time. This means that homeowners who have not borrowed all of their available funds have a growing line-of-credit that often makes refinancing unnecessary.
However, there are many reasons why a current reverse mortgage client may want to refinance into a new one. Here are just a few:A homeowner who is recently married may want his/her new spouse added to title and be listed on the note. With a H2H Refi, the new spouse would have additional protection that the reverse mortgage offers.
Property values may have increased, offering the homeowner additional funds.A H2H Refi may be needed if the homeowner wishes to change loan programs (Fixed Rate or ARM), or if they wish to reduce their interest rate. One additional reason for a H2H Refi is that home values and HUD Caps have increased over time.For this reason, homeowners with higher-valued homes who obtained their HECMs more than 6 years ago, might find the program even more attractive today.
What is the IMIP Credit?
One nice advantage is that the borrower may get credit for the amount of Initial Mortgage Insurance Premium (IMIP) they paid on their last transaction. This happens regardless of how long it has been since their previous closing.