Who is responsible for paying back a reverse mortgage?

If the last surviving borrower or the eligible non-borrowing spouse who received a reversed mortgage loan dies, the debt is repaid by the estate and the heirs. Under federal regulations, heirs must repay the full balance of the loan or 95 percent of the home's appraised value, whichever is lower. 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. If you or your heirs have enough savings, you may be able to pay off the balance of the reverse mortgage loan in cash.

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. A reverse mortgage is a loan available to homeowners age 62 and older that uses the equity in their home as collateral. Only the lump sum reverse mortgage (one-time payment), which gives you all your income at once at the close of the loan, has a fixed interest rate.

Borrowers must pay an opening fee, an initial mortgage insurance premium, other standard closing costs, current mortgage insurance (MIP) premiums, loan service charges (sometimes), and interest. If the balance owed on the loan exceeds the value of the home, your heirs won't have to pay the difference. However, the only way to prove if interest is deductible is to keep a record that shows exactly how you used the funds from a reverse mortgage. Under reverse mortgage rules, your responsibilities are to keep up to date with property taxes and property insurance (and homeowners association fees, if any) and to keep the home in good condition.

For example, if you use the money to supplement your income and pay off debts or buy a vacation home instead of saving for retirement, drawing on your home equity could adversely affect the amount you have saved when you retire. Usually, you don't need to pay a reverse mortgage until you move out of the house or die. While you're facing delays or roadblocks due to a problem with property title, imminent foreclosure, or a lack of information from the managing entity, you'll have to pay for maintenance, taxes, and home insurance. Even if it does, due to a drop in the market value of the home or if the borrower lives longer than expected, the borrower or the borrower's estate will not be responsible for paying the difference to the lender thanks to the program's mortgage insurance.

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, the proceeds from the sale of the home go to the lender to repay the 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.

Because the landlord receives payments from the lender, the owner's equity in the property decreases over time as the loan balance increases. A homeowner who is 62 or older and has significant accumulated value can borrow against the value of their home and receive funds such as a lump sum, a fixed monthly payment, or a line of credit. .

Harry Lammel
Harry Lammel

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