Wondering how you pay back a reverse mortgage? We can help. Keep reading to learn more about repayment options and scenarios.
The original intent of a reverse mortgage structure was to leverage home equity to keep seniors in possession of their homes permanently, with the lender being repaid by their estate through a property sale. Today’s contracts, however, offer more options and potential outcomes.
So, after you sign the contract, how do you pay back a reverse mortgage?
Like with a traditional mortgage, you (or your heirs) can pay off a reverse mortgage through a property sale or by leveraging other cash or assets. That said, there’s a little more to it. As with any major financial decision, there are several reverse mortgage pros and cons that can impact your choice of when and how to repay the loan.
Reverse mortgages are a type of mortgage loan that must be repaid to the lender, including the amount borrowed plus accrued interest. You can use financial services tools like a reverse mortgage calculator to determine the amount that you still owe.
Repayment is required in certain circumstances, including the death of the reverse mortgage borrower or transfer of title. However, like any loan, you can also opt to repay the loan proceeds at any time to discharge the debt.
Nearly all reverse mortgages in the U.S. are home equity conversion mortgages (HECMs) which are insured by the Federal Housing Administration (FHA). This FHA backing means that the government will cover a portion of repayment if your home value is lower than the amount due. If you or your heirs sell the property, so long as it sells for the lesser of 95% of the home’s or loan’s value,2 FHA insurance will cover the remaining amount due on a HECM reverse mortgage.
So, how much money do you get from a reverse mortgage? This amount can vary based on several factors. Of course, it’s key to have certainty about the full amount you’ve been loaned before you begin the process of repayment.
A reverse mortgage must be repaid upon specific changes in circumstances. Repayment triggers occur at these times:
A reverse mortgage payment cannot be transferred. It must be repaid upon the borrower’s death, or the last surviving borrower’s death if there are multiple borrowers.
HECM loans provide one exception to this rule. A surviving spouse can remain in the property after the mortgage borrower’s death so long as they qualify as an eligible non-borrowing spouse according to the U.S. Department of Housing and Urban Development (HUD) rules.3
If the home is no longer the borrower’s principal residence, the reverse mortgage must be repaid.
This principal residence clause encompasses not just the “home in which the borrower resides the majority of their time” but also the continuity of occupancy. If the borrower is away from the property for longer than 12 consecutive months (without a co-borrower remaining in residence), then repayment is triggered.3
This is true regardless of circumstance, even if the borrower is temporarily resituated at a healthcare facility.
Reverse mortgage loans, just like any other type of mortgage, must be repaid if the property changes hands. This includes both a traditional property sale as well as transferral of ownership within a family unit.
Reverse mortgage contracts also mandate actions that ensure the property will not unnecessarily lose value or elicit liens. Borrowers must:
If these conditions are not met, repayment of the loan balance can be demanded by the reverse mortgage lender, typically resulting in sale of the home.
Once you’ve decided to move forward, how do you repay a reverse mortgage? Sale of the property isn’t the only option.
Reverse mortgages can be repaid by:
When you consider repayment of a reverse mortgage, start by deciding whether your goal is to move out or remain living in place. You can repay the loan with a cash injection, through funds borrowed from or provided by family, or by selling your property and using the proceeds.
Can you refinance a reverse mortgage? In short: yes, but this option may not be the most suitable if you want to avoid accruing more debt.
If you want to continue living in your home without a reverse mortgage, there are options to leverage your home equity and pay off your mortgage without incurring additional debt.
Unlike a reverse mortgage, Truehold's sale-leaseback is not a loan, so there is no debt left over for you to repay. With a sale-leaseback, you sell your property in full. Instead of moving out, however, you remain in the home you love as a renter. In addition, this option allows you to avoid the stress of open houses and seemingly endless closing costs associated with a traditional home sale.
As soon as the sale closes, you can use your equity to repay your reverse mortgage. You’ll no longer have the cost and work involved in homeownership—property tax, homeowners insurance, and major repairs are all taken care of. You’ll remain in your home as long as you choose so long as you keep up with the monthly payments for rent and comply with the lease.
Find out more by calling us today. A Truehold Advisor will reach out to review the process and see if a sale-leaseback fits your financial goals and situation.
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