A reverse mortgage is a home equity loan for 62 or older homeowners. With this, you can borrow against the value of your home and can receive the amount as a lump sum, fixed monthly income, line of credit or combination of all.
With a reverse mortgage, instead of you making the payments to the lender, the lender pays you. You can choose how to receive these payments. The interest on payments rolled into the loan balance, therefore, you not need to pay anything upfront. In addition, you can keep the title of the home as well.
Among many benefits, reverse mortgages offer convenient and easy terms for repayment. As long as you pay property taxes, insurance, and maintenance expenses, you will never be asked for payments on the loan balance during reverse mortgage time period.
So, when will you have to pay back the loan amount or what happens at the end of a reverse mortgage? Let’s discuss this.
When Does The Reverse Mortgage Ends?
Most of the time reverse mortgages come to an end in one of the following three ways.
- You elect to pay the loan amount back when feeling financially secure.
- You sell your home or move out of the house permanently.
- You are not the primary residence of your home.
- When you die or pass away.
When you do not pay your property taxes, insurance, and maintenance expenses, the reverse mortgage may become due. So, when you opt for the reverse mortgage you are responsible to pay for property taxes, insurance, and repair cost.
Paying Back a Reverse Mortgage
When any of the above instances occur, the reverse mortgage loan becomes payable. The one of the best ways to repay the loan is by selling the home, where you can use the proceeds from the sale to repay the full loan amount including interest.
If you sell your house and get more value more than what you owed on the loan, you or your heirs can keep the remaining money to use as you please.
But, what if your loan amount is more than selling price of your home? Would you be responsible for paying this excess amount?
Thanks to FHA (Federal Housing Administration), as the association pays off the difference from the insurance proceeds that you have paid regularly. The insurance and the fees associated with closing the loan rolled into your complete loan amount, which cannot exceed the total equity available in your home.
Selling a House with a Reverse Mortgage
A reverse mortgage is a loan that you can repay at any time without penalty. Therefore, yes, you can sell your home with a reverse mortgage at any convenient time you want.
If you decide to sell your home, you have to pay back the loan money you borrowed including interest and closing fees. After repaying the loan amount, you can keep the remaining amount with you.
After the death of the borrower, the lender can sell the house to recover the loan amount and give back excess money to your heirs or spouse. If your heirs want to keep the home, they have to pay back the whole loan amount.
How Long Do Heirs Have To Pay Off a Reverse Mortgage?
Within two to six months after the death of the borrower, heirs must choose whether they want to sell the home or not. After six months of the death of the homeowner, the lender can start the process for a foreclosure to satisfy the loan amount.
If heirs do not wish to keep the home, they can sell it and can pay the mortgage amount including interest as well as fees. If the value of the home increases the loan amount, heirs can take the extra money with them after repaying the loan.
Note: The interest will continue to add in the loan amount during this time
If you are a 62 or older homeowner and looking for a sure way to supplement your retirement income a reverse mortgage is for you. Try our reverse mortgage calculator to get the quick estimate of how much you may receive from the reverse mortgage loans.
At the end of the reverse mortgage, you have to pay the loan with interest. But, until you are alive, living in the same house or primary residence of the home you don’t need to repay the loan. The reverse mortgage is repayable after your death or you move out of the home permanently.
If you are planning to get a reverse mortgage for additional income, you may consult a professional like Brett. Because the process of reverse may seem complicated to you and Brett can help you with that.