Many older adults have benefited from a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage loan, to help supplement their cash flow during a down market. By tapping into their home equity, they were able to use the funds immediately to help with daily living expenses, medical bills, or set aside for an emergency. An important part of having a reverse mortgage loan is having a plan in place for when the loan becomes due.
The following information might be helpful if you or someone you know has a reverse mortgage.
A Maturity Event is Triggered
A maturity event is triggered when you either pass away, the home is sold, the title is transferred to someone else, or you reside in a healthcare facility for more than 12 consecutive months. The reverse mortgage loan now becomes due.
However, if both spouses were 62 or older and were on the title for the reverse mortgage loan, the loan does not become due until the last surviving spouse passes away, moves out, or resides in a healthcare facility for more than 12 consecutive months.
If one spouse passes away, the surviving spouse can continue living in the home and will have access to any remaining reverse mortgage proceeds.
Communicate with Your Servicer
When a Maturity Event has occurred, you or your heirs should immediately contact the loan servicer. Within 30 days of being notified of a Maturity Event, your loan servicer will send a “Due and Payable” letter, which will include the current loan balance, options for paying back the reverse mortgage, the number of days to reply, and options to avoid foreclosure.
Continue to stay in close contact with your loan servicer. Once the Due and Payable letter is sent, you have 30 days to respond or your loan servicer can initiate foreclosure as required by federal regulation.
No additional funds can be disbursed from the reverse mortgage once a maturity event has occurred.
Paying off the Debt
Payment is due immediately; however, you and your heirs may have up to six months to satisfy the debt. The property can be sold to pay off the debt, use private savings, or the property can be purchased for 95% of its current appraised value.
If more time is needed to sell the property, you can request a 90-day extension from the loan servicer. You or your heirs will need to prove the property is being actively marketed or financing is being actively pursued. If the property still has not sold after the first extension has expired, you may request one additional 90-day extension.
Settling the Loan
There are a few options when it comes to settling the loan.
The property may be sold to repay the loan. If the proceeds from the sale are more than the loan amount, you or your heirs can keep the excess. If the sale of the home does not pay off the loan, the department of House and Development (HUD) absorbs the extra loan amount, as long as the reverse mortgage loan is federally insured.
HECMs are “non-recourse” loans and if the home is sold to repay the loan, heirs won’t owe more than the loan balance or the value of the property (whichever is less) and no assets other than the home will be used to repay the debt.
Your heirs may keep the home and will either repay the balance of the loan or refinance and pay 95% of the home’s current value. If your heirs decide they do not want the home, they don’t need to do anything and are not responsible for any repayment.
If you are interested in accessing your home equity with a reverse mortgage loan, call (800) 976-6211 to speak with a licensed reverse mortgage advisor.