It’s important to understand what happens after the Reverse Mortgage loan becomes due and payable and what your estate’s options are at that time. When the loan comes due the estate will be required to pay back the principal balance (total amount of money owed) to the loan servicing company.
This means that if the home is worth $400,000 and they owe $230,000 the estate will be required to pay back $230,000. If the home is worth $300,000 and the client owes $350,000 the estate will be required to pay back on $300,000. This is because the Reverse Mortgage is insured through FHA and is a non-recourse loan meaning that you can never owe more than the value of your home.
When the loan becomes due the first thing to do is to call your servicing company. The servicing company is the one who sends you your statement each month. It’s important to call the servicing company right away as each company has different policies and procedures from this point forward. Generally speaking you should have 6-12 months to either:
- Pay back the loan from your own assets
- Secure a new loan against the property and pay off the Reverse Mortgage with the proceeds from that loan (refinance the home)
- Sell the home and pay off the Reverse Mortgage
As I stated above, each servicing company is different so it’s important that you call your servicing company directly with any specific questions.