Inverted home loans generally 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 property insurance, or if you don't keep the house in good condition. When any of these cases occur, 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 reverse mortgage loan in full.
Usually, you or your heirs will assume responsibility for the transaction and receive all of the remaining equity in the home after repaying the reverse mortgage loan. When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan where the lender pays you. Reverse mortgages take 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.
Usually, the money you receive is tax-free. You usually don't have to return the money while you live in your house. When you die, sell your home, or move, you, your spouse, or your estate will repay the loan. Sometimes that means selling the house to get money to repay the loan.
There are no prepayment penalties when a reversed mortgage is canceled early. Paying a reverse mortgage early is favorable in many scenarios. You can leave the house to your heirs without paying anything or with a much smaller debt than you originally had. A reverse mortgage is simply a unique type of loan.
If you have the cash available to pay off the outstanding balance, you can pay off the loan by sending a payment to the lender. If you have a “set-aside” or you agree to have the lender make these payments, those amounts will be deducted from the amount you get as a product of the loan. The lender cancels all mortgage documents and returns all fees, closing costs and unused funds within 20 days. While you receive a steady influx of cash with a reverse mortgage, it's ultimately a loan that needs to be repaid.
When you start learning about a reverse mortgage and its associated benefits, your initial impression may be that the loan product is “too good to be true”. Whether you're the reverse mortgage borrower or you're an heir trying to settle a reverse mortgage after the death of a loved one, take your time to consider your options before making a decision. If a loved one with a reverse mortgage dies, their heirs may want to pay the reverse mortgage instead of having to sell the house to pay off the debt. Home Equity Conversion Mortgages (HECM) are federally insured reverse mortgages backed by the U.
The most popular repayment strategy is to sell the property, after which the funds from the sale are used to pay the reverse mortgage in full. Lauren Nowacki is a writer specializing in personal finance, homeownership and the mortgage industry. HECMs and reverse property mortgages can be more expensive than traditional home loans, and the initial costs can be high. The lender can initiate foreclosure proceedings or allow the non-borrowing spouse to remain in the home through the optional mortgage creditor allowance (MOE).
With this right of cancellation, borrowers have three business days after signing the reverse mortgage closing documentation if they want to cancel the transaction without penalty. A reverse mortgage can be paid off early by refinancing it with a traditional loan or paying the difference between how much you borrowed and how much you owe on the home. You can also refinance the loan to a traditional mortgage by obtaining a new mortgage and using the income to pay off the existing balance. If that's the case, you might consider refinancing your current reverse mortgage to one with better terms.
If you own a higher-value home, you may get a larger loan advance with a reverse mortgage. .