A reverse mortgage allows homeowners 62 and older to convert a portion of their home equity into usable funds without having to repay the loan for as long as the loan obligations are met.1 The fact that reverse mortgages do not require monthly mortgage payments2 often leaves potential borrowers with questions about when the loan needs to be repaid.
The list below provides answers to common questions about how to pay back a reverse mortgage.
When does my reverse mortgage become due?
A reverse mortgage becomes due when the borrower fails to meet the loan obligations or no longer occupies the home as their primary residence. The loan obligations require the borrower to pay for their own homeowners’ insurance, property taxes, and maintain their home in accordance with guidelines mandated by the Department of Housing and Urban Development.1 As long as these terms are met; monthly mortgage payments are not required.
What happens when I pass away?
When the last reverse mortgage borrower passes away, the loan becomes due. The heirs of the borrower have a few choices when it comes to repaying the loan. Heirs can sell the home to pay off the loan balance and retain any excess equity. Or, if they want to keep the home, they can refinance the loan, or pay it off out of pocket.
In the event the loan balance is greater than the value of the home, the heirs can either arrange to voluntarily turn over ownership of the property to the lender (deed in lieu of foreclosure), or buy the home at 95% of the appraised value.
What happens if I sell my home or move out?
When a borrower sells their home or moves out, their loan obligations are no longer being met. This means that the loan becomes due. Borrowers can use the proceeds from the sale of their home to pay off their reverse mortgage loan.
It is important to note that a mortgage is a non-recourse loan, which means that the lender cannot look to other assets for repayment.
If you are a homeowner, 62 or older, and looking for a way to supplement your retirement income a reverse mortgage may be right for you. Try our reverse mortgage calculator above to receive a quick estimate of how much you may be eligible to receive.
1 You will retain the title and ownership during the life of the loan, and you can sell your home at any time (at which time the loan becomes due). The loan will not become due and subject to repayment as long as you continue to meet loan obligations such as living in the home as your primary residence, maintaining the home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance. Failing to meet these requirements can trigger a loan default that may result in foreclosure.
2 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.