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How Do You Pay Back a Reverse Mortgage?

One of the most attractive features of a reverse mortgage loan is that it does not require monthly mortgage payments to pay it back. This can help free up a significant amount of cash for retirees who may be struggling to make ends meet.  

But a reverse mortgage is a loan, which means it will need to be paid back at some point. If you are exploring reverse mortgages, it’s important to understand how this aspect of them works.  

In this article, we’ll explore the intricacies of reverse mortgages, pinpointing when repayment is required, and explore the various options available to borrowers and their families.  

Whether you’re considering a reverse mortgage, currently have one or are an heir to a property with a reverse mortgage loan, our goal is to equip you with the knowledge to navigate the repayment process with confidence. 

Understanding Reverse Mortgages  

The most common type of reverse mortgage is the home equity conversion mortgage (HECM), which is backed by the federal government through the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).  

A HECM reverse mortgage is a special type of home loan designed for homeowners aged 62 and older. It allows them to access equity in their homes without the requirement of making monthly payments.  

Instead of the borrower paying the lender, the roles are reversed, and the lender makes payments to the borrower based on the equity they have in their home, similar to a home equity loan or home equity line of credit (HELOC).   

A reverse mortgage provides reverse mortgage proceeds in the form of monthly installments, a line of credit, or a lump sum that can be used for covering living expenses, medical bills, home repairs and upgrades, or supplementing retirement income. 

The amount a homeowner can borrow depends on several factors, including the home’s value, the borrower’s age, and current interest rates. The older the borrower and the more valuable the home, typically the larger the available loan amount. 

While borrowers are not required to make monthly mortgage payments, they must keep up with property taxes, homeowners’ insurance, and keep the home in good condition. 

The property in question must also be the borrower’s primary residence. This means they need to live in their home most of the year, and the property needs to remain their primary residence throughout the life of the loan.  

Reverse Mortgage Payoff: When Repayment is Due 

There are certain events that can trigger the reverse mortgage balance to be repaid. Understanding these triggers is essential for borrowers and their family members to plan appropriately and avoid any surprises.  

Here are the primary circumstances under which a reverse mortgage becomes due: 

  • Sale of the Home. If the borrower decides to sell the home, the reverse mortgage must be paid off as part of the sale process. The proceeds from the sale are typically used to repay the loan balance, with any remaining equity going to the borrower. 
  • Permanent Move or Relocation. A reverse mortgage requires the borrower to maintain the property as their principal residence. If the borrower moves out permanently, for example, to a long-term care facility or another residence, the loan becomes due. Generally, 12 consecutive months of non-occupancy is considered a permanent move. 
  • Failure to Meet Loan Obligations. Borrowers are required to pay property taxes, maintain homeowners’ insurance, and keep the property in good condition. Failure to meet these obligations can lead to the loan becoming due. 
  • Borrower’s Passing. The death of the last remaining borrower is a common trigger for the repayment of a reverse mortgage. Upon their passing, the loan balance becomes due, and heirs or estate executors must address the repayment. 

How to Pay Back a Reverse Mortgage Loan 

When the time comes to repay a reverse mortgage, borrowers have several strategies at their disposal.  

Here are the primary avenues for repaying a reverse mortgage: 

  • Repayment from Other Assets. The loan can be repaid using funds from the borrower’s estate or other assets, preserving the home for heirs. 
  • Sale of the Property. The home can be sold, and the proceeds used to repay the loan.  
  • Refinancing the Loan. In some cases, the reverse mortgage can be refinanced into a traditional mortgage. 
  • Deed in Lieu of Foreclosure. If the borrowers decide not to keep the property, a deed in lieu of foreclosure is an option to satisfy the loan by transferring the property to the reverse mortgage lender. 

Professional advice from financial advisors, real estate experts, and legal counsel can provide invaluable guidance during this decision-making process, ensuring that borrowers make informed choices that align with their financial goals and circumstances.  

The Role of Heirs in Reverse Mortgage Repayment 

If the last surviving borrower passes away while he or she still has a reverse mortgage, their heirs will be faced with important decisions regarding the property and the outstanding balance of the loan. Understanding their roles, rights, and options can help them navigate the repayment process more effectively. 

Immediate Actions Upon the Borrower’s Passing 

  • Notification. Heirs must promptly notify the lender of the borrower’s passing. This initiates the repayment process and starts the timeline within which actions must be taken. 
  • Evaluation of the Estate. Heirs should assess the estate’s value, including the home and any other assets, to determine the best course of action for repaying the reverse mortgage. It may be advantageous to meet with a financial advisor or family attorney to assist this step in the process.  

Options Available to Heirs 

Heirs will have the following options available to them:  

  • Keep the Property. If heirs wish to keep the home, they can choose to repay the reverse mortgage through refinancing into a regular mortgage or using other available assets.  
  • Sell the Property. Heirs may opt to sell the home to pay off the reverse mortgage. If the home’s sale price exceeds the loan balance, heirs can keep the remaining equity. 
  • Deed in Lieu of Foreclosure. In situations where neither keeping the home nor selling it is viable, heirs might consider a deed in lieu of foreclosure. This option involves handing over the property to the lender and satisfying the loan without going through a formal foreclosure process. 
  • Do Nothing. Ultimately, heirs don’t have to do anything to settle the loan. In nothing is done to pay back the loan, the lender will simply foreclose on the property. 

Decision-Making Process 

These are some recommendations that may help with deciding the best course of action for you: 

  • Consult with Professionals. Seek advice from financial advisors, estate attorneys, and real estate professionals to understand the implications of each option and to navigate the legal and financial aspects of the repayment process. 
  • Communicate with the Lender. Open and ongoing communication with the lender is essential. Lenders can provide specific details about the loan balance, deadlines for decision-making, and potential solutions tailored to the heirs’ circumstances. 
  • Consideration of Timelines. Lenders typically provide a timeline, often six to 12 months, to decide and act on the repayment of the reverse mortgage. This period allows heirs to assess their options, potentially refinance the loan, or prepare the property for sale. 
  • Legal Protections. Reverse mortgages are non-recourse loans, heirs are not personally liable for any deficit if the property’s sale does not cover the loan balance. 

FAQs  

Can a reverse mortgage borrower repay a reverse mortgage before it is due? 

Yes. Reverse mortgage borrowers can start paying back the loan before it is due. There is no penalty for paying back a reverse mortgage loan early.  

What if the reverse mortgage loan balance is more than what the home is worth?  

Reverse mortgages are non-recourse loans. Borrowers will never owe more than the loan balance or the home’s value, whichever is less. This means if the sale of the home does not cover the full amount of the loan, neither the borrowers nor their heirs are personally liable for the shortfall.  

[Source: HUD HECM Handbook] 

Are heirs obligated to pay back the reverse mortgage loan? 

No, heirs are not obligated to pay back a reverse mortgage loan. If they don’t want to keep or sell the home, they have the option of signing the deed over to the lender or doing nothing and allowing the property to go into foreclosure.  

How much time do you have to pay back a reverse mortgage? 

A reverse mortgage loan becomes due and payable as soon as a triggering event occurs. If the heirs want to sell the home, lenders typically provide six months to complete the transaction. Two 90-day extensions are typically provided if it can be demonstrated that the heirs are actively trying to sell the home.  

What happens if you don’t pay back a reverse mortgage? 

Just like with a traditional mortgage, if you don’t pay back the reverse mortgage according to the agreed terms, the lender will be forced to foreclose on the property. 

Have More Questions?  

Each homeowner’s financial situation is unique. The best way to ensure that all questions you have about your situation are addressed is to talk to one of our reverse mortgage advisors.  

Many of our reverse mortgage specialists have decades of experience in the mortgage industry and have helped older homeowners solve various problems.  

Reach out today by filling out the form on this page or by using our directory to find a reverse mortgage loan officer in your area.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

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How to Apply for a Reverse Mortgage

How Much Can I Get From a Reverse Mortgage?

Navigating Reverse Mortgage Counseling: A Comprehensive Guide for Prospective Applicants 

A reverse mortgage is a financial tool that enables homeowners aged 62 and older to access a portion of their home’s equity while continuing to live in the property.  

The appeal of a reverse mortgage lies in its potential to provide a much-needed source of retirement income for those who may have limited pension or savings, helping them cover living expenses, medical costs, or other financial needs.  

Reverse mortgage counseling is a required step that plays a pivotal role in ensuring that individuals considering a reverse mortgage make informed and confident decisions, so they can be sure that a reverse mortgage is the right choice for them. 

In this article, we will cover everything you need to know about reverse mortgage counseling so you can feel comfortable navigating this unique requirement.  

Understanding Reverse Mortgages 

A home equity conversion mortgage (HECM), also known as a reverse mortgage, is a unique financial product designed for senior homeowners that allows them to convert a portion of their home equity into cash without having to sell or move out of their homes.  

While it is a loan like a traditional mortgage, the way it works is very different. In contrast to a traditional mortgage, where borrowers make monthly payments to the lender to gradually build equity and eventually own the home outright, a reverse mortgage works in reverse.  

First, the reverse mortgage loan will pay off your current mortgage, if you still have one. 

For the remaining equity, instead of making a monthly mortgage payment, homeowners receive the reverse mortgage proceeds from the lender, either as a lump sum, a line of credit, regular monthly installments, or a combination of these options. 

Homeowners are still responsible for paying for the property taxes, homeowners insurance, and maintenance of their principal residence. 

The loan is repaid when the homeowner permanently moves out of the home, sells the property, or passes away.  

Unlike traditional mortgages, credit and income qualifications are generally less strict for reverse mortgages, making them an appealing option for seniors seeking supplemental income during retirement.  

Reverse mortgages are backed by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD). 

Reverse Mortgage Requirements 

To be eligible for obtaining a reverse mortgage, there are certain criteria that need to be met by the prospective borrower: 

  • Age. At least one of the homeowners must be at least 62 years old. 
  • Residency. The property in question must be the primary residence of the homeowner. This means that it cannot be a second home or an investment property.  
  • Equity. The homeowner must have sufficient equity in their home. 
  • Counseling. The homeowner must undergo mandatory counseling from a HUD-approved reverse mortgage counselor to ensure they fully understand the terms and implications of the reverse mortgage program.    

The Role of Reverse Mortgage Counseling 

Reverse mortgage counseling is a mandatory educational program that HUD requires all prospective reverse mortgage borrowers to complete as part of the loan application process. It provides impartial guidance and ensures that applicants are well-informed before proceeding with their loan application. 

The counseling session aims to educate homeowners on the workings of a reverse mortgage, the features of the reverse mortgages, and important information they should consider.  

Additionally, the counselor will provide homeowners with detailed information to ensure that a reverse mortgage aligns with their specific situation. They will also inform homeowners about potential alternatives, such as a home equity line of credit (HELOC) or a home equity loan. 

The counselor will also provide helpful resources to assist homeowners in making an informed decision and provide support for the homeowners during the reverse mortgage process.  

The reverse mortgage counselors should not advise clients on whether or not to proceed with a reverse mortgage, nor should they recommend a specific reverse mortgage product. Their primary responsibility is to educate clients in an unbiased manner. 

The Reverse Mortgage Counseling Session Format 

The reverse mortgage counseling session can be conducted in-person or over the phone with a third-party counselor. 

In-person sessions typically involve meeting with a certified counselor face-to-face at a designated location or in your home. This is the format that HUD recommends.  

Online counseling via Zoom or Skype is not available.  

Phone sessions, on the other hand, offer convenience and flexibility as they can be scheduled at a time that suits both the counselor and the homeowner. This may also make it easier for other family members to attend.  

Once the appointment is made, you will be sent an information packet that will provide details about the benefits and costs of a reverse mortgage. It will be important to review this packet prior to the appointment, and your counselor is required by HUD to give you sufficient time to review this packet.  

The counseling session typically takes between 60 and 90 minutes. The amount of time it takes depends on each individual borrower. It may take longer if the homeowners have a complex financial situation or if the homeowner has additional questions.  

Homeowners are allowed to have family members, or a financial adviser included in the session.  

Reverse Mortgage Counseling Requirements 

The reverse mortgage counseling session must be completed with a third-party HUD-approved counselor.  

While your loan officer can provide you with a list of at least five counseling agencies to contact, the reverse mortgage appointment has to be made by the homeowners. It cannot be made by the lender.  

Here is a list of required information that HUD mandates that the reverse mortgage housing counselors cover during the counseling session: 

  • Homeowners’ needs and circumstances 
  • The features and details of a reverse mortgage 
  • Borrower responsibilities under a reverse mortgage 
  • The costs of a reverse mortgage 
  • Financial and tax implications of a reverse mortgage 
  • Alternative options to a reverse mortgage 
  • Information about reverse mortgage fraud schemes and elder abuse to be aware of 

Once the counseling session is complete, the certificate of completion will be sent to you rightaway. This can be done through email, fax, or traditional mail.  

You will need to provide the reverse mortgage counseling certificate to your lender before you can move forward with the reverse mortgage loan application.  

Common Reverse Mortgage Counseling Questions 

How Do I Find Reverse Mortgage Counseling Near Me? 

Your reverse mortgage loan officer will be able to provide you with a list of reverse mortgage counseling services in your area.  

Alternatively, you can also obtain a list of counselors by calling HUD at 800-569-4287 or using HUD’s HECM agency online search tool, which allows you to filter by Zip Code, city, and state. 

What is the Reverse Mortgage Counseling Cost? 

The cost of a reverse mortgage counseling session varies based on the location and counseling agency. The typical range is from $125 to $200.  

The homeowner is responsible for the cost of the counseling session, as it cannot be paid by the lender. This requirement guarantees the counselors’ independence, preventing any potential obligations towards lenders. 

Can I Get Free Reverse Mortgage Counseling? 

In cases of financial hardship, homeowners can request a reduced fee. This is done through the agency not the lender. This typically involves submitting an application along with supporting documentation that demonstrates the homeowner’s current financial situation. 

There are also some counseling agencies that offer their services at no charge. Your loan officer may be able to direct you to one of these agencies.  

How Long is a Reverse Mortgage Counseling Certificate Good for? 

The counselor provides homeowners with a certificate at the end of the counseling session, which remains valid for 180 days.  

In most states, the certificate remains valid if the loan is closed within the 180-day period, provided that the homeowners obtain a case number from the lender before the expiration date.  

However, if a homeowner chooses not to obtain a case number or close on the reverse mortgage loan within this timeframe, they will be required to complete a second counseling session before applying. 

Can I Get Reverse Mortgage Counseling by Phone? 

Yes, reverse mortgage counseling can be completed in person or by phone.  

If I Complete Counseling, Does that Mean I’ll be Approved for a Reverse Mortgage? 

Receiving a reverse mortgage counseling certificate is not a guarantee that you will be approved for a reverse mortgage loan. However, it is an important step to complete so that you are able to file your reverse mortgage application.  

Bottom Line 

Reverse mortgage counseling is a required step for prospective applicants to navigate the complexities of obtaining a reverse mortgage. By participating in counseling, applicants can make informed decisions about whether a reverse mortgage aligns with their financial goals and circumstances.  

Remember to reach out to a HUD-approved counselor to schedule your counseling session and obtain the necessary certificate before moving forward with your reverse mortgage application. 

If you have more questions about the reverse mortgage process, reach out to one of our reverse mortgage specialists by filling out this form or through our loan officer directory.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

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How Much Can I Get From a Reverse Mortgage