A home is sometimes the most significant investment for a person. For the majority of people, the challenge is using that investment. One solution is to move out of your home, but for some people, that’s a difficult decision.
How is a reverse mortgage repaid?
The absence of monthly payments for the loan duration is one of the attractive features of a reverse mortgage. Instead, the loan must be paid back when the primary borrower vacates the property, sells it, or dies.
The principal amount of the loan plus interest, premium mortgage insurance, and any other costs are what the borrower, or the borrower’s heir in the event of the borrower’s decease, will be required to repay. Regardless of the total loan amount, lenders under the HECM program cannot demand that a borrower or an heir owe more than the house is worth.
You have the following choices for paying off a reverse mortgage:
- Sell the house and fully pay off the mortgage:
- By selling the property, borrowers or their heirs can settle the remaining sum of a reverse mortgage.
- The loan will subsequently be paid off with the proceeds from the sale.
- The borrower or their heirs will keep the excess proceeds if the house is sold for more than the mortgage.
Pay off what you can and sell the house for 95% of the appraised value:
- Suppose the borrower or their heirs are underwater on their mortgage. In that case, they can sell the property for 95% of the appraised value and utilize the proceeds to pay down the loan.
- Lenders are not allowed by the FHA to pursue the outstanding loan balance.
- Reverse mortgages that are proprietary or have a specific purpose may be able to pursue the difference.
- Always double-check with your lender.
Give a deed to the lender:
If a house is underwater, the borrower or their heirs may give the deed to the lender rather than deal with foreclosure. This decision won’t affect the heir’s credit score, but the borrower’s credit score will suffer.
An heir can obtain a new mortgage:
- If a borrower passes away, an heir may opt to keep the home by refinancing the reverse mortgage.
- The successor may purchase the property for 95% of its appraised value if the reverse mortgage balance exceeds the house’s value.
- The reverse mortgage must be paid off within six months by the heir.
- The loan’s interest will keep building up during this time.
Refinance your mortgage:
- If a borrower chooses to vacate the property but wants to continue renting it out, they will be required to repay the loan.
- The borrower may refinance the loan into a forward mortgage if they cannot repay it with their funds.
How does a reverse mortgage operate if I am married?
It is advised that applicants for reverse mortgages list their spouses as co-borrowers. This prevents repayment from starting until both parties have moved out or passed away. Additionally, because they were listed on the application in the first place, the spouse of the primary borrower will still be eligible to receive money from the loan in the event of their death.
Repayment may start as soon as the borrower vacates the property or passes away if your spouse is not specified as a co-borrower on the reverse mortgage application. This strategy may also result in the expulsion of the surviving spouse from the house.
But for HECMs issued after August 4, 2014, a non-borrowing spouse may continue residing in the house even after the borrower has left or passed away if they meet specific requirements, such as:
- When the loan was granted, it had to be wed to the borrower.
- The loan documentation must list them as your spouse.
- When still alive, the borrower must recertify yearly that their spouse is a qualified non-borrower.
If you fit these requirements, you won’t have to pay back the reverse mortgage until you pass away or vacate the property.
Why Select Conventional Lenders
The best reverse mortgage company like standard lenders helps many satisfied customers. With a specialty in reverse mortgages, we are a full-service mortgage and real estate agency that provides excellent service with a personal touch. So contact us.