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.
These reverse mortgages are a little different from traditional HECMs that pay off existing forward liens. In fact, the National Reverse Mortgage Lenders Association (NRMLA) has issued updated guidelines to prevent “loan flipping” or “churning”, a practice where a loan originator repeatedly refinances an existing HECM borrower with no bona fide advantage to the borrower.
That said, there are several reasons why someone would want to refinance their reverse mortgage.
Why would someone refinance their HECM anyway?
Firstly, it’s not for everyone. 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:
What is the IMIP Credit?
Another advantage of a HECM to HECM refinance is that the borrower should get a 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.
This means that the closing costs could be substantially less than they were when the first HECM was obtained.
Are there updated guidelines?
How do I proceed with a H2H Refi?
In addition to repeating the HECM reverse mortgage counseling class, the borrower(s) will need to obtain a “HECM Servicer Refi Worksheet.” This document from their current mortgage servicer will show their original Maximum Claim Amount (MCA), how much they paid in Initial Mortgage Insurance (IMIP), and the date of their last transaction. Keep in mind, prior to 2009 there were county lending limits in place. Therefore, their appraised value may have been much higher than their MCA.
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