Who is Responsible for Paying Back a Reverse Mortgage?

If the last surviving borrower or the eligible non-borrowing spouse who received a reverse mortgage loan dies, the debt is repaid by the estate and the heirs. Under federal regulations, they must pay off the full balance of the loan or 95% of the home's appraised value, whichever is lower. If you have a Home Equity Conversion Mortgage (HECM), your heirs must pay off the full balance of the loan or 95% of the home's appraised value, whichever is lower. Alternatively, if you or your heirs have enough savings, you may be able to pay off the balance of the reverse mortgage loan in cash.

When it comes to reverse mortgages, borrowers are responsible for paying an opening fee, an initial mortgage insurance premium, other standard closing costs, current mortgage insurance (MIP) premiums, loan service charges (sometimes), and interest. The most you will have to pay is 95% of the value of the home. Usually, a reverse mortgage can be repaid at any time. Under reverse mortgage rules, borrowers must also keep up to date with property taxes and property insurance (and homeowners association fees, if any) and keep the home in good condition.

If the balance owed on the loan exceeds the value of the home, your heirs won't have to pay the difference. However, only a record that shows exactly how you used the funds from a reverse mortgage can prove if interest is deductible. Rates and fees can vary widely between lenders; the federal government does not set reverse mortgage rates. Under current tax laws, borrowers who use a reverse mortgage to purchase or substantially improve their home may be eligible for a home interest tax deduction when the reverse mortgage is paid. When the owner moves or dies, proceeds from the sale of the home go to the lender to repay principal, interest, mortgage insurance and reverse mortgage charges. As part of your plan, make sure you have a will before applying for a reverse mortgage to ensure that all your assets (including your house) are transferred to the right person at the time of your death. A homeowner who is 62 or older and has significant accumulated value can borrow against their home's value and receive funds such as a lump sum, a fixed monthly payment, or a line of credit.

Because payments are received from the lender, equity in the property decreases over time as loan balance increases. It's important to remember that while you're facing delays or roadblocks due to a problem with property title, imminent foreclosure, or lack of information from managing entity, you'll have to pay for maintenance, taxes, and home insurance. Even if it does not cover all costs due to a drop in market value of home or if borrower lives longer than expected, borrower or borrower's estate will not be responsible for paying difference to lender thanks to program's mortgage insurance.

Harry Lammel
Harry Lammel

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