Paying back a reverse mortgage early is favorable in many scenarios. For instance, there are no prepayment penalties for paying off a reverse mortgage earlier than usual. You can leave the home to your heirs clear and free, with no or a much smaller debt than occurred in the beginning.
So if you are also considering paying off a reverse mortgage early, read below for a step-by-step guide to the process:
How A Reverse Mortgage Also Can Be Paid Off Early
Step 1: Choose a date to pay off your reverse mortgage. Request your lender “no further draws” against the credit line of the equity and a payoff statement that includes the month when the mortgage is to be paid off.
The payoff statement lists all payments made over the course of the mortgage, accumulated interest and costs associated with borrowing the loan.
Step 2: The statement may also include 34 days of interest, which provides padding if the payment is posted after the first of the month.
Since a reverse mortgage is backed by the Federal Housing Authority, the posting takes place on the first business day of the month, and a weekend could push it to the third day of the month.
Step 3: If you are selling the home, you may claim reimbursement if you had prepaid the insurance for an entire year. So let your insurance agent know the expected payoff day.
Step 4: It is worth to let your title closing agent handle the mortgage paperwork and the lien releases on your behalf. The process requires released for the lender and the FHA for the mortgage insurance premium. On the other hand, if you handle the payoff on your own, send a cashier check for the money through overnight mail or wire transfer to the lender’s bank. Follow up to make sure that the lender has received the funds.
Step 5: Contact the title company agent to know if you need to fill out a form to receive a prorated rebate of mortgage insurance premiums. Also, request any “set aside” fees if any.
Can I Get Out Of A Reverse Mortgage?
The great news is yes! You can get out of a reverse mortgage using the following two options:
• The Right Of Rescission: Most reverse mortgages come with “the right of rescission.” With this cancellation right, borrowers have three business days after signing their reverse mortgage closing paperwork if they want to cancel the transaction with no penalty. The lender cancels all mortgage documents and returns all fees, closing costs, and unused funds within 20 days.
• HECM For Purchase: The HECM for purchase allows you to purchase a new home and obtain a reverse mortgage in one transaction. However, once closing documents are signed, and you have received proceeds, the decision is final.
Reverse Mortgage Heirs Responsibility
Reverse mortgage heirs are not responsible to pay the loan balance or pay back the loan. If the loan balance is more than the appraised value of the home, the heirs are not held responsible to pay the difference.
This is because a reverse mortgage is a nonrecourse loan and the FHA insurance absorbs the loan balance. The borrower pays this insurance during the loan closing as well as each month.
When the borrower dies, the heirs can keep the home by financing the HECM loan. They may sell the home and keep the remaining proceeds that don’t go toward the reverse mortgage loan repayment. Alternatively, heirs may walk away without any negative effect on their credit histories or sign a Deed-in-Lieu of Foreclosure to satisfy the loan.
Heirs are advised to process a reverse mortgage loan quickly after it becomes due.
Can A Reverse Mortgage Be Refinanced
There are many good reasons why many homeowners choose to refinance their reverse mortgage.
• Increased Home Equity
When you notice an increase in the value of your revere mortgaged home, refinancing allows you to tap into the additional home equity with the jumbo reverse mortgage program. This program allows for home values to be more than the FHA lending limit of $726,525. You can receive the proceeds as a lump sum cash-out payment and/or a line of credit.
• Lower Interest Rate
Reverse mortgage refinancing can lead to lowered current loan interest rate.
Also, the ongoing mortgage insurance premium, which was recently lowered from 1.25% to .50%, can also be beneficial a good reason to refinance your reverse mortgage.
If you want to pay off a reverse mortgage, it is wise to seek and expert advice. Therefore, contact a reverse mortgage lender to know your options. A professional and industry experienced lender will help you navigate through the process smoothly.