Can you refinance a reverse mortgage to a conventional loan?

A reverse mortgage allows the elderly to borrow against a portion of their home’s equity, which is the difference between the property’s market value and the outstanding balance on the loan taken to buy the house. Similar to a conventional mortgage, your home is the security for a reverse mortgage, though the interest rate on a reverse mortgage is likely to be higher than the rate on a conventional home loan. Also, while you are responsible for repaying a typical home loan using your income, the reverse mortgage is typically repaid either from your estate after you pass on or, if you sell your home, from the sale proceeds. Given that it is one kind of loan, you can refinance a reverse mortgage as well.

You should, however, only refinance your reverse mortgage if you have a strong reason, such as a significant rise in your home’s equity or a sharp decrease in the interest rate. For instance, you may have taken a reverse mortgage some years ago, but the value of your house has increased since then, and you'd like to tap into some of the additional equity via refinancing the reverse mortgage.

You could also consider refinancing to add your partner or another person living in the house to the reverse mortgage if they aren’t already listed as a co-borrower. Doing so may be necessary if your partner or other family member wants to continue living in the home, which may not be possible if only you are listed as a borrower. Check the lender’s policies on co-borrowing to make sure those you leave behind can indeed continue to stay in the house. Also, you can look at other options like downsizing if refinancing isn’t viable owing to the costs.

Refinancing a reverse mortgage allows you to borrow more by leveraging a higher percentage of your home’s equity, but the amount that your heirs have to repay also grows. Luckily, you cannot end up borrowing more than the worth of your home, thanks to Australia’s negative equity protection laws. However, your house’s value may not increase sufficiently enough to leave aside anything after repaying the reverse mortgage. 

Also, if the property market contracts, your home’s value could drop as well, meaning that your heirs may have to use their savings or borrow money to cover the reverse mortgage if the borrowed amount exceeds your home’s (contracted) value. Further, you should check if the costs of refinancing the reverse mortgage cancel out any benefit you may get from the lower interest rate. Even if you have access to much higher home equity, ideally you don’t want to spend a large chunk of it on paying reverse mortgage fees.