Inverted home loans, also known as reverse mortgages, are a type of loan that allows homeowners to access the equity in their home. Generally, these loans must be repaid when the homeowner moves out of the house or passes away. However, the loan may need to be repaid sooner if the home is no longer the primary residence, if taxes or insurance are not paid, or if the house is not kept in good condition. In these cases, the loan matures and is payable.
The most common way to repay a reverse mortgage is to sell the house and use the proceeds to pay off the loan in full. Usually, you or your heirs will be responsible for the transaction and receive any remaining equity in the home after repaying the loan. With a regular mortgage, you pay the lender each month to buy your home over time. With a reverse mortgage, you get a loan where the lender pays you.
This type of loan takes part of your home's net worth and converts it into payments for you. The money you receive from a reverse mortgage is usually tax-free and does not need to be repaid while you live in your house. When you die, sell your home, or move out, you, your spouse, or your estate will need to repay the loan. This is usually done by selling the house and using the proceeds to pay off the loan.
There are no prepayment penalties when a reverse mortgage is canceled early. Paying off a reverse mortgage early can be beneficial in many scenarios and can leave your heirs with more equity in the home or no debt at all. A reverse mortgage is simply a unique type of loan. If you have enough cash available to pay off the balance, you can send a payment to the lender and cancel all mortgage documents.
The lender will return all fees, closing costs, and unused funds within 20 days. When learning about reverse mortgages and their associated benefits, it's important to take your time and consider all of your options before making a decision. If a loved one with a reverse mortgage passes away, their heirs may want to pay off the loan instead of having to sell the house. Home Equity Conversion Mortgages (HECMs) are federally insured reverse mortgages backed by the U.
S. government. These loans can be more expensive than traditional home loans and have high initial costs. With this right of cancellation, borrowers have three business days after signing closing documents if they want to cancel without penalty.
A reverse mortgage can be paid off early by refinancing it with a traditional loan or paying off any difference between how much was borrowed and how much is owed on the home. You can also refinance the loan to a traditional mortgage by obtaining a new mortgage and using that income to pay off the existing balance. If that's an option for you, consider refinancing your current reverse mortgage for one with better terms. If you own a higher-value home, you may get a larger loan advance with a reverse mortgage.
It's important to understand all of your options before making any decisions about paying off a reverse mortgage.