Question

“My husband wants to inquire about refinancing a reverse mortgage we originally had with Metropolitan, that was sold to Champion. Our chief reason to inquire is that at the time we took out this reverse mortgage, I was not 62 yet (almost 63 now) & we were told I could be added thereafter.

Another reason we’re interested is that we would like to respond to an offer we have from a camp behind us to purchase 7.5 acres of our 13.9 acres that are essentially useless to us (boulders, etc.) but helpful for them. By selling this land & having my name on the reverse mortgage, it would also save a lot on additional life insurance I’d need to pay off the current reverse mortgage, so I wouldn’t have to leave our home, if my husband pre-deceases me. Reading that we’d only have to pay the difference in the original a mortgage insurance we paid, gave us another incentive. When my husband called your toll free #, though, he was told that it’d be $59,000 to add my name & that if the original contract stated we could not sell any land, we wouldn’t be able to sell the land!

If we’d be paying off the first contract, wouldn’t we be able to include that we could sell that portion of land in the new contract? We understand that the appraisal would then be for the home & the remaining 6.4 acres, but again, the land is locked & is of no use to anyone else, but the camp that backs up to us.

Any suggestions or information you could give us would be greatly appreciated.”

Answer:

You have a couple of different issues here. The first is the new loan. You can refinance the reverse mortgage now to add a previously under aged spouse and it is true that when you do a HECM to HECM refinance, that portion of the Initial Mortgage Insurance Premium that you paid on the first loan would not have to be repaid on the refinance.

In other words, just to use round numbers and to make things easy, if you paid $5,000 on the first loan in the Initial Mortgage Insurance Premium (IMIP) premium and based on the current program the amount would be $6,000 for a new loan based on your current value, you would not have to repay that portion that you already paid ($5,000) and the only amount you would have to pay would be $1,000 for the refinance. If, however the values had dropped significantly and the new IMIP would only be $4,500, you would not owe anything on the IMIP for the new loan and there is also no credit back to you for the difference.

Since the minimum age for a reverse mortgage is 62, at 63 you are at the very lowest end of the available benefits. I don’t know how old your husband was when he got the reverse mortgage or how long you have had it, but there are a couple of factors that will lead to you having to bring in so much money to close a new loan now.

Firstly, your husband is older, and the lending limits were based on his age and now you are going to benefits based on your age. Even if your husband was your age at the time the loan was taken out, if that was a few years ago, then there is interest that has accrued, and you now go back to the start. Finally, HUD has changed the program 3 times in the past 5 years, lowering the benefit amount borrowers can receive under the program with the last change coming.

In other words, borrowers who take out reverse mortgages now do not receive as much money so those who seek to refinance will now find that unless they have experienced a great deal of appreciation in their home value, they will be forced to bring cash in to close the loan. If interest rates start to rise, it will only exacerbate this issue as borrowers receive less money once rates climb above the HUD floor of just over 5%.

Now comes the tougher part, the division of the property. Once you get a loan that encompasses a piece of property (a reverse or forward mortgage), the only way to split off and sell a portion of that property is to get a partial reconveyance from the lender. The process for doing so is typically for the borrowers to get a survey for the land to be partitioned off, make a formal request of the lender to release the land from their lien and if granted, then you would be able to sell it.

The lender will have to do an appraisal of the property (usually at a cost to the individual making the request) minus the additional land to determine what effect the lower acreage has on the value and marketability (as well as get HUD’s approval since the loan is insured by HUD).

It’s hard to say which would be best, to do the split now while you still have another loan on the property and then get your next reverse mortgage after everything is said and done or do it then. Based on what you are telling me, I would be inclined to say it might be better to get it done now and here’s why. I believe that any lender will require you to use some of the money to pay down the existing loan even if it was based on a percentage of the property and not a percentage of the overall value.

In other words, if the research showed that the value would not be impaired by allowing you to partition the 7.5 acres, I still thing that the lender would require you to use a good chunk of any proceeds to pay down the loan since the 7.5 acres represents roughly 54% of the total lot. So if you did it now and then did your refinance, the appraisal would be done on just the property as it stood at that time and if the value of the new property with 6.4 acres appraised for the same at that time as it did when it contained 13.9 acres, it would not affect your new loan or your proceeds in any way.

Before you do anything though, you want to be sure to check sales in the area to be certain that any changes would still be typical for the area and marketable so that any changes you make would not impair your ability to get a new reverse mortgage in the future as well.

As with any reverse mortgage, compare multiple lenders rates and customer reviews. A good place to start is at https://reversemortgagereviews.org/ or https://www.reversemortgage.org/Find-a-Lender