How do you pay back a reverse mortgage?
Reverse mortgages generally aren't due until you die, move, sell the home or fail to keep up with the property, its taxes and its insurance. However, it’s worth thinking about how to pay back a reverse mortgage, whether you’re a borrower or one of the borrower's heirs. Here are some insights into how to pay back a reverse mortgage and what to consider if you just walk away.
Ways to pay back a reverse mortgage
Reverse mortgages generally don’t require repayment until a so-called maturity event takes place. However, once your loan matures, you must pay it back in full. There are three main ways people do this.
1. Selling the home
The most common way to repay a reverse mortgage is to sell the home and use the proceeds to pay back the loan. You are fully responsible for completing the transactions, and you only receive the leftover equity after settling your reverse mortgage in full. If you’re dead and your spouse or heirs sell the property, these duties will be up to them.
If the reverse mortgage amount is higher than the home's selling price, you don’t necessarily need to worry. Reverse mortgages are usually nonrecourse debts. This means the lender cannot hold you or your heirs liable for any amount they fail to recoup from the sale of the home.
2. Using savings
While most reverse mortgage borrowers won’t have enough in savings to pay off their loan, you can always opt to start saving now to make a lump-sum payment later. Consider making monthly “payments” to a savings account that you can use when your loan comes due.
Paying with savings might also be a viable option for heirs who are willing to pool their money or those who receive a significant cash inheritance or life insurance payout. Heirs of home equity conversion mortgage (HECM) borrowers can even choose to pay 95% of the home’s appraised value if that’s less than the remaining balance on the reverse mortgage.
Refinancing your reverse mortgage into a forward mortgage is another way to pay without selling the house in question. This involves getting another loan from a different lender to pay off your reverse mortgage in full.
In case of your death, refinancing can also be a solid option for your heirs if they want to keep the home. In this case, they would need to get a traditional forward mortgage, though.
When do you pay back a reverse mortgage?
A reverse mortgage does not require you to make any monthly repayments until the loan comes due. This generally happens when you do any of the following:
- Pass away
- Decide to sell the home in question
- No longer use the home as your primary residence
- Transfer the title of the home into someone else's name
- Default on any of the terms or conditions of your reverse mortgage
Consult your contract to see what might make your loan come due.
These maturity events may come about in unconventional ways, so be sure to think your actions through ahead of time. For example, if you plan to travel for more than a year, your lender may execute the early payback clause. Likewise, your permanent residence may change if you ever move to an assisted living facility or nursing home. Your reverse mortgage could even come due if you fail to keep your home in good condition or pay your homeowners insurance or property taxes on time.
However, if you pass away and your spouse is not a co-borrower of the loan, they may be able to continue living at the property without having to repay the loan until it otherwise reaches maturity. If you have a HECM from on or after Aug. 4, 2014, the U.S Department of Housing and Urban Development's “non-borrowing spouse” rule helps protect your spouse as long as they meet certain criteria. Earlier HECMs or proprietary reverse mortgages may not have these protections for spouses, though.
Can you walk away from a reverse mortgage?
The answer depends on what you mean by “walk away”:
- If you have a reverse mortgage on your home and you move away permanently or abandon the home, the loan will likely become due.
- If the reverse mortgage in question comes due and you ignore the repayment, the lender will likely foreclose on the home and sell it to get their money back.
So, you can walk away from a reverse mortgage, but there are significant downsides. Evaluate your situation and consider your other options before walking away.
Selling a house with a reverse mortgage
If you decide to sell a house with a reverse mortgage, you should have the right to do so. However, you need to repay your lender with the proceeds before keeping the remaining money, if there is any. Contact your lender or consult your loan agreement for details.
Tips for selling with a reverse mortgage
Selling a home with a reverse mortgage is somewhat similar to selling a home without one. However, there are certain differences that you should be aware of:
- You should contact your reverse mortgage lender first. It’s good to know how much you actually owe, including the principal, interest and fees.
- If you’re unsure about any of the technicalities of repaying your reverse mortgage, consider contacting a real estate attorney. This is especially important if you don’t trust your lender to obey their legal obligations.
- After you have sold the home with a reverse mortgage, ensure that that lender receives the payment and closes your account as soon as possible. Remember that you are entitled to any remaining equity, though.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
- Consumer Financial Protection Bureau (CFPB), “When do I have to pay back a reverse mortgage loan?” Accessed April 23, 2021.
- U.S. Department of Housing and Urban Development (HUD), “HOME EQUITY CONVERSION MORTGAGES FOR SENIORS.” Accessed April 23, 2021.
- U.S. Department of Housing and Urban Development (HUD), “LET FHA LOANS HELP YOU.” Accessed April 23, 2021.
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