Inverted home loans generally need to be repaid when you move out of the house or when you die. However, the loan may need to be paid back sooner if the home is no longer your primary residence, if you don't pay property taxes or property insurance, or if you don't keep the house in good condition. If you have a Home Equity Conversion Mortgage (HECM), your heirs must repay the full balance of the loan or 95% of the home's appraised value, whichever is lower. Unlike other loan products, repayment of a reverse mortgage is not achieved through a monthly mortgage payment over time.
Instead, it is paid off all at once when the loan matures. This usually happens when you sell or transfer the title to your home or abandon it permanently. However, it can also occur if you don't meet the terms of the loan. You are considered to have permanently left your home if you do not live in it 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 an extended period of time, or if you die.
Reverse mortgagestake part of the net worth of your home and convert it into payments for you, a kind of prepayment on the net worth of your home. The money you receive is normally tax-free and you usually don't have to return it while you live in your house. When you die, sell your home, or move, you, your spouse, or your estate would repay the loan.
Sometimes that means selling the house to get money to repay the loan. If interest rates are lower than when you first got your loan or the value of your home has increased, you could refinance it with a new reverse mortgage. With a product as potentially lucrative as a reverse mortgage and a vulnerable population of borrowers who may have cognitive deficiencies or are desperately seeking financial salvation, scams abound. If the landlord moves or dies, all the money earned by selling the home is reimbursed to the lender who provides a reverse mortgage.
Taking out a reverse mortgage also means spending a significant portion of your home's net worth on fees and interest on the loan. If you're 62 or older and want money to pay your mortgage, supplement your income, or pay for health care expenses, you may consider applying for a reverse mortgage. Your home improvement costs include not only the price of the work being done, but also the costs and fees you'll pay to get the reverse mortgage. If you own a home, condominium, or townhome, or a prefabricated home built on or after June 15th 1976, then you may be eligible for a reverse mortgage.
With this product being so potentially lucrative and with vulnerable populations who may have cognitive deficiencies or are desperately seeking financial salvation, scams abound. It's important that anyone interested in applying for a reverse mortgage takes their time to thoroughly learn how these loans work so that no unscrupulous lender or abusive scammer can take advantage of them and they'll be able to make an informed decision even if they hire a shoddy reverse mortgage advisor. A reverse mortgage can make it possible for older people to stay in their homes and supplement their retirement income. If you own a higher-value home, you may get a larger loan advance from a reverse mortgage.
Talk to your tax advisor about the implications of the reverse mortgage tax and how they may affect you before taking out this type of loan. If you don't want to keep the house after taking out a reverse mortgage, either yourself or your heirs can simply sell it to pay off the loan. The interest rate on your reverse mortgage will be calculated by adding an index rate (usually 2.5%) with a lender's margin (usually 2%). So if interest rates are lower than when you first got your loan or the value of your home has increased, refinancing with a new reverse mortgage could be an option.