Can I Get a Reverse Mortgage With an Existing Mortgage?
Yes. You do not need to own your home mortgage-free to qualify for a reverse mortgage. The key question is whether enough reverse mortgage financing is available to pay out the existing mortgage and still accomplish what you need.
← Back to Reverse Mortgage QuestionsAn Existing Mortgage Does Not Automatically Prevent a Reverse Mortgage.
The existing mortgage will normally need to be dealt with from the reverse mortgage proceeds. That means the amount currently owing against the home directly affects how much cash, if any, remains available afterward.
Existing Mortgage Balance
We need the current payout amount because the existing mortgage will normally need to be paid out as part of the reverse mortgage transaction.
Property Value
A current appraisal is generally required because the property's value is a major factor in determining how much reverse mortgage financing may be available.
Age of the Homeowner
The age of the homeowner — or homeowners — is another important factor in determining the amount the reverse mortgage lender may advance.
Other Secured Debt
Second mortgages, liens or other debt registered against the property also need to be identified when calculating the required financing.
Payout and Discharge Costs
Any applicable mortgage prepayment penalty, discharge cost or other required payout amount can reduce the net proceeds available.
Net Cash Available
The important number is what remains after the existing mortgage, required secured debt and applicable closing costs are dealt with.
The Reverse Mortgage Approval Is Not Necessarily the Amount You Receive in Cash.
Suppose a reverse mortgage lender approves $300,000, but $200,000 is required to pay out the existing mortgage before considering other applicable costs. The homeowner does not receive the full $300,000 as cash.
That is why we calculate the complete transaction rather than focusing only on the maximum reverse mortgage amount.
This is the total amount of financing approved by the reverse mortgage lender.
The amount required to discharge the current mortgage is deducted from the available proceeds.
Other secured debt and applicable transaction costs can further reduce the amount available.
What remains after the required payouts and costs is the amount actually available to the homeowner.
Eliminating the Existing Mortgage Payment Can Be the Real Benefit.
A homeowner may not need a large lump sum. The objective may simply be to replace an existing mortgage that requires monthly payments with a reverse mortgage that generally does not require regular monthly mortgage payments.
Remove the Monthly Mortgage Payment
Paying out the existing mortgage can eliminate a significant required monthly expense from retirement cash flow.
Improve Monthly Cash Flow
The amount previously used for mortgage payments can potentially remain available for other retirement expenses.
Access Additional Funds
If enough reverse mortgage proceeds remain after the existing mortgage is paid out, additional funds may be available for other needs.
Stay in the Home
Reducing monthly payment pressure can help some homeowners remain in the property rather than selling solely because of cash-flow concerns.
Understand the Equity Trade-Off
If voluntary payments are not made, interest can accumulate and the reverse mortgage balance can grow over time.
Compare the Alternatives
The reverse mortgage should be compared with the realistic alternatives, including keeping the existing mortgage, refinancing conventionally, using a HELOC or selling.
You Do Not Need to Be Mortgage-Free.
Having an existing mortgage does not automatically prevent you from getting a reverse mortgage. What matters is whether enough financing is available to pay out the existing mortgage and leave you with the financial result you are trying to achieve.
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