Refinancing a HECM into a new HECM
When a new reverse mortgage on the same home is worth its cost: the premium credit formula, the gain in principal limit and the rule that can waive counseling.
Gain in principal limit
$43,150
New principal limit $288,000 against $244,850 today; $131,800 left after paying the old loan and the costs.
| Factor at age 79, 6.625 % | 0.450 |
| New maximum claim amount | $640,000 |
| Upfront MIP before credit | $12,800 |
| Credit for MIP already paid | $12,600 |
| Upfront MIP due | $200 |
| Origination + other costs | $6,000 |
| Gain minus costs vs 5 × costs | passes |
HUD's anti-churning disclosure compares the gain with the cost of the refinance; counseling can be waived only when the gain exceeds the cost by 5 times the cost and the first HECM closed less than 5 years ago.
Worked out by Radif Partners · How we calculate · factors read on hud.gov · not a loan offer
A HECM-to-HECM refinance pays off the old reverse mortgage with a new one on the same home, and the upfront mortgage insurance premium (MIP) is capped by a formula in 24 CFR 206.53: 3 % of the increase in the maximum claim amount (MCA), minus the upfront premium paid on the old loan. A borrower aged 79 whose old loan was counted at $380,000, with 2 % paid upfront, and whose home is now appraised at $640,000 owes $200 of upfront MIP instead of $12,800. The new principal limit is $288,000, against $244,850 on the old loan today, a gain of $43,150 for $6,200 of premium and origination fee. The lender must show both figures on HUD's anti-churning disclosure, form HUD-92901. Counseling can be waived only when the gain exceeds the cost by 5 times the cost and the application comes within 5 years of the first closing.
The premium credit formula, line by line
The regulation (24 CFR 206.53(c)) caps the upfront premium the lender remits on the new loan at the difference between 3 % of the increase in the maximum claim amount and the upfront premium already charged and paid on the existing HECM. Written out, with the figures of the borrower aged 79:
- IMIP limit = (MCA new − MCA old) × 0.03 − IMIP old;
- IMIP old = $380,000 × 2 % = $7,600;
- IMIP limit = ($640,000 − $380,000) × 0.03 − $7,600 = $200;
- IMIP due = the lesser of that limit and 2 % of the new MCA, $12,800, never below zero: $200.
Loans with case numbers assigned before October 2, 2017, when Mortgagee Letter 2017-12 set the upfront rate at 2 % for everyone, could have paid an upfront rate of 0.5 %. Had the old loan been one of them, the old premium would be $1,900 and the premium due $5,900. The table keeps the old MCA at $380,000 with 2 % paid, and changes the new appraisal.
| New appraised value | 2 % of the new MCA | 3 % of the MCA increase | Formula result | Upfront MIP due |
|---|---|---|---|---|
| $520,000 | $10,400 | $4,200 | -$3,400 | $0 |
| $580,000 | $11,600 | $6,000 | -$1,600 | $0 |
| $640,000 | $12,800 | $7,800 | $200 | $200 |
| $720,000 | $14,400 | $10,200 | $2,600 | $2,600 |
| $850,000 | $17,000 | $14,100 | $6,500 | $6,500 |
| $1,000,000 | $20,000 | $18,600 | $11,000 | $11,000 |
The rule rewards a real rise in value. Below about $633,333 of new MCA, the formula is negative and the new premium is zero; above it, the premium climbs by 3 % of each extra dollar of MCA until it meets the full 2 %.
The gain is smaller than the new loan suggests
The old principal limit did not stay where it was at closing. It grows each month by one twelfth of the note rate plus the annual MIP, as the Handbook sets for every adjustable HECM. A principal limit of $189,000 at closing, at a note rate of 5.99 % plus 0.5 %, has become $244,850 after 4 years. That current figure, from the annual statement, is what the anti-churning disclosure subtracts.
| New appraised value | New principal limit | Gain over the old loan | Cost of the refinance | Gain above 5 × the cost |
|---|---|---|---|---|
| $520,000 | $234,000 | -$10,850 | $6,000 | not met |
| $580,000 | $261,000 | $16,150 | $6,000 | not met |
| $640,000 | $288,000 | $43,150 | $6,200 | met |
| $720,000 | $324,000 | $79,150 | $8,600 | met |
| $850,000 | $382,500 | $137,650 | $12,500 | met |
| $1,000,000 | $450,000 | $205,150 | $17,000 | met |
At $520,000 the new loan lends less than the old one already allows, so a refinance would only add costs. At $640,000 the gain is $43,150. After the old balance of $150,000 is paid off as a lien (line 5 of the HUD payment plan) and the costs are paid, $131,800 of the new principal limit is left. The first-year limit then applies to the new loan as to any HECM, with the payoff counted among the costs paid at closing.
Where does the gain come from? The new loan reads HUD's table at the borrower's age today, 79, and the expected rate today: a factor of 0.450. Applied to the old value of $380,000, it would give $171,000, less than the $244,850 the old loan already allows. The rise in value carries the whole case: $260,000 more of MCA times 0.450 adds $117,000. Being four years older helps less than it seems, because the old principal limit kept growing for those four years.
Your new appraisal
Gain in principal limit
$43,150
| Factor at age 79, 6.625 % | 0.450 |
| New maximum claim amount | $640,000 |
| Upfront MIP before credit | $12,800 |
| Credit for MIP already paid | $12,600 |
The anti-churning disclosure, HUD-92901
The disclosure exists so that a refinance is weighed against what it costs. It is given together with the other loan disclosures, in which the lender states its best estimate of two numbers: the total cost of the refinance, defined as the fees allowed by 24 CFR 206.31 plus the upfront premium of the formula above, and the increase in principal limit. The Handbook lists form HUD-92901 and all supporting calculations for its first two blocks among the documents of every HECM-to-HECM case. The form compares; it does not decide. A borrower can still refinance when the gain is thin, and then counseling is required.
When counseling can be waived
Counseling is otherwise required for every HECM. On a refinance, the borrower and any non-borrowing spouse may decline it only when all of these hold (24 CFR 206.53(e)):
- the first HECM got its case number on or after August 4, 2014 and its borrowers and any non-borrowing spouse were counseled, or it is older and there is no non-borrowing spouse;
- the borrower received the anti-churning disclosure;
- the gain in principal limit exceeds the cost by the amount HUD sets by notice, which the calculator applies as 5 times the cost;
- no more than 5 years separate the closing of the first HECM from the refinance application, even if an earlier refinance came in between.
In the $640,000 case, 5 times the $6,200 cost is $31,000, and the gain minus the cost is $36,950: the test is met. The four-year-old loan is inside the 5-year window. The counseling page explains the session for those who take it, and the MIP page the premium itself.