Reversed mortgage loans usually need to be repaid when you move out of the house or when you die. However, the loan may need to be repaid sooner if the home is no longer your primary residence, if you don't pay property taxes or homeowners insurance, or you don't keep the home in good condition. Anyone can pay a reverse mortgage, including the borrower, spouse, heirs, or other family members. This is more common in situations where the last surviving borrower or eligible non-borrowing spouse dies and the heirs decide to repay the loan.
When either of these cases occurs, the reverse mortgage loan matures and is payable. The most common method of repayment is to sell the house, where the proceeds from the sale are used to repay the reversed mortgage loan in full. Typically, you or your heirs will take responsibility for the transaction and will receive the remaining equity of the home after the reverse mortgage loan has been repaid. You usually apply for a reverse mortgage on a house you own.
The reverse mortgage lender then pays you with monthly payments, a lump sum, or through a line of credit. A common question borrowers ask themselves is: “Can reverse mortgages be repaid? The answer is yes, paying off your loan is one way to avoid potential reverse mortgage nightmares if things are going in the wrong direction. Mortgage Conversion Mortgages (HECM), the most common type of reverse mortgage, carry a number of one-time charges and ongoing costs. Unscrupulous salesmen and home improvement contractors have turned to seniors to help them get reverse mortgages to pay for home improvements, in other words, so they can make money.
In either case, you'll usually need at least 50% of the equity based on the current value of your home, not what you paid for it to qualify for a reverse mortgage. But often, homeowners who choose this type of loan wonder how to get out of a reverse mortgage due to a change in circumstances or long-term plans. If you have enough equity in your home, you may be able to sell your home to pay your reverse mortgage and use the profits to move somewhere else with lower expenses. Reverse mortgages allow older homeowners to convert some of the equity they have accumulated in their home into cash, but you need to know the rules first.
If the value of your home has increased significantly since you applied for your loan, it may be an option to refinance your reverse mortgage for additional income. Variable-rate reverse mortgages are linked to a benchmark index, often the Constant Maturity Treasury Index (CMT). Before you or a loved one applies for this type of loan, it is important to understand the circumstances in which a reverse mortgage may not provide lifetime financial security. Along with the financial obligations mentioned above, there are other requirements for a reverse mortgage.
If you are thinking of getting a reverse mortgage, learn more about the other different types of mortgage loans available to you as an alternative option. CFPB warns that younger retirees with longer life expectancies are more likely to use the full equity of their home with a reverse mortgage. If the loan balance is greater than the selling price of the home, borrowers who have the federally insured version of a reverse mortgage, also known as a home equity conversion mortgage (HECM), are offered additional protections. A reverse mortgage allows you to stay in your home for life even after you've depleted the home's equity.
While the reverse mortgage loan is a powerful financial tool that takes advantage of your home's equity and at the same time defers payment for a period of time, your obligations as a homeowner do not end with the closing of the loan. Reverse mortgage borrowers are also required to keep up with property taxes and homeowners insurance.
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