The reverse mortgage is primarily a resource for our senior population, and it has become a widely used financial instrument. A reverse mortgage is a loan made to someone who has a great deal of equity in their homesomeone who in almost all cases has lived there a long time and is a retired American on a fixed income. It's a method of taking cash out of the home's equity via a 'reverse' mortgage in which the loan company pays the homeowner instead of the other way around. When the home occupant dies or sells the property, the loan is repaid with interest.

Reverse mortgages can be paid in lump sums, in monthly installments or can be used as a line of credit. They are often used for the massive medical expenses that too many retirees encounter which are not covered by Medicare or any additional private medical insurance they may hold. Reverse mortgages may be used to pay for long term care in the case of extended illness or serious injury, to modify homes for persons with limited movement capability, or for more pleasant uses such as travel or to establish a cash reserve invested elsewhere.

Not Just a One-Time Opportunity

The FHA has monitored this market closely; to prevent abuses and to minimize those situations where older citizens are entering into loans they don't understand. One of the roles the FHA plays is in setting limits to the amount that can be loaned, limits that vary by region and are adjusted yearly.

That is one factor that may contribute to making a refinanced reverse mortgage a good idea. Generally speaking, the older you are and the more your home is worth the more you can borrow with a reverse mortgage. If you took out a reverse mortgage five years ago, the chances are excellent that the value of your home has increased by fifteen or twenty percent or perhaps more. You have also grown five years older.

In all likelihood, the FHA has raised the limits on reverse mortgage borrowing in your area. Finally, there is the possibility that interest rates have fallen since you took out that initial reverse mortgage. For all these reasons, a refinanced reverse mortgage may get you, the retired citizen, a larger monthly payment from your new reverse mortgage.

Proceed with Caution

As with all refinance loans, it is important to analyze the impact that the loan's cost will have on your overall financial picture. Refinancing loans can have high initial fees. They can also be loans with interest rates that rise over time, like a standard ARM or a hybrid loan. They can be made to look far more attractive than they should look to a retired person or couple who aren't looking much beyond the next few years.

The FHA has shown a good deal of concern about predatory lending in this sector, and so should family members of people who are contemplating refinancing their reverse mortgage. At the very least, see to it that some loan shopping is done and that an independent analysis is provided so that everyone involved understands which loan is the best deal under the circumstances, and that the seniors who are refinancing their loan understand the terms of their new agreement thoroughly.