In general, reverse mortgage loans must 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. Upon the death of the borrower and the eligible non-borrowing spouse, the loan is due and repaid. Your heirs have 30 days from when they receive the notice of maturity and payment from the lender to buy the house, sell it, or turn it over to the lender to settle the debt.
However, the deadline may be extended up to one year so that your heirs can sell the house or get financing to buy the house. Your heirs can consult a HUD-approved housing counseling agency or an attorney for more information. A reverse mortgage is different from other loan products because repayment is not achieved through a monthly mortgage payment over time. Instead, it is repaid once upon maturity of the loan.
Loan maturity usually occurs if you sell or transfer title to your home or leave it permanently. However, it can also happen if you do not meet the terms of the loan. You are considered to have left your home permanently if you do not live there as your primary residence for more than 12 consecutive months. This can happen if you move to a nursing home or your child's home, if you travel for a long period of time, or if you die.
Once a triggering event occurs, the reverse mortgage loan matures and is payable. This means that the full amount of money that the lender has disbursed to the borrower must be repaid, plus any interest and charges accrued over the life of the loan. Even if one spouse moves to a long-term care facility, the reverse mortgage doesn't have to be repaid until the second spouse moves or dies. Usually, if the property is sold, the escrow company will accept the buyer's money and pay the reverse mortgage along with any other liens on the property.
Depending on the type of reverse mortgage you choose, you may be able to access up to 60% of your home equity. For a more accurate estimate that takes into account your specific lifestyle and financial goals, call a reverse mortgage specialist. That's where reverse mortgages come into play, especially for retirees with limited incomes and few other assets, but also for retirees who want to diversify their income and reduce investment risk, sequence risk and longevity risk. When you begin to learn about a reverse mortgage and its associated advantages, your initial impression may be that the loan product is “too good to be true.”.
In either case, you'll typically need at least 50% equity based on the current value of your home, not what you paid for it to qualify for a reverse mortgage. If you own a home, condo or townhome, or a manufactured home built on or after June 15, 1976, you may be eligible for a reverse mortgage. Along with the financial obligations mentioned above, there are other requirements for a reverse mortgage. Borrowers must pay an opening fee, an upfront mortgage insurance premium, other standard closing costs, ongoing mortgage insurance premiums (MIP), loan servicing charges (sometimes), and interest.
Mortgage Conversion Mortgages (HECM), the most common type of reverse mortgage, carry a number of one-time charges and ongoing costs. So, if the index rate is 2.5% and the lender's margin is 2%, then the interest rate on the reverse mortgage will be 4.5%. Variable-rate reverse mortgages are linked to a benchmark index, often the Constant Maturity Treasury Index (CMT). 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.
Victoria Araj is a section editor at Rocket Mortgage and held positions in mortgage banking, public relations and more during her more than 15 years with the company. If, after all this careful consideration, you get a reverse mortgage and find that you no longer want the loan, here are five common ways to get out. . .