There are many advantages of being able to use a reverse mortgage, one being the terms of repayment. Unlike a traditional mortgage, there are no required monthly mortgage payments during the term of the loan. While you must still pay property taxes, homeowners insurance and maintenance costs, one of the wonderful things about a reverse mortgage is that it eliminates the financial burden of a monthly mortgage. You will never have to worry about any company coming to collect while you’re enjoying your life in the home you love – as long as you continue to pay property taxes, insurance, and home maintenance costs. That’s because the loan is not due until one of three situations occur: you sell the home, no longer use the home as your primary residence, or you pass away. So what happens, then, when your loan comes due? We’ll examine that question and some of the other questions that you may ask about a reverse mortgage loan repayment.
What happens when your loan comes due?
When one of the three aforementioned situations happen, the balance of your reverse mortgage comes due. If you pass away, sell your home, or no longer use your home as your primary residence- for example, you decide to live in your Florida home for the majority of the year – then you or your heirs sell the home to repay the loan. If the home is worth more than what is owed, you or your heirs get to keep any of the remaining proceeds from the sale.
What if the home isn’t worth my loan amount?
Reverse mortgages are what is known as non-recourse loans. This means that you will never owe more than what your home is worth. How is this possible? This is where your FHA Mortgage Insurance comes into play. When your home isn’t worth enough to cover the balance of your loan, mortgage insurance is what pays the difference. However, this doesn’t mean that you can leave your home in disrepair. Remember, you are still responsible for properly maintaining your home and keeping your insurance and taxes up to date throughout the life of the loan.
What if my heirs want to keep the home?
If your heirs wish to keep the home, the loan balance is still due. In this case, they can either purchase the home at 95% of its current appraised value or pay off the loan amount – whichever is less. They may also choose to refinance the debt into a traditional mortgage. Remember, your heirs will never owe more than what the home is worth.
If you or your heirs want nothing to do with the home, there is also the option of signing the home over to the lender and walking away from it.
What about my spouse, who is under 62 years of age?
As of August 4, 2014, you can still get a reverse mortgage even if your spouse is under the age of 62. However, the younger spouse will not be on the loan. If you pass away and your spouse is still living in the home, he or she does not have to immediately pay back the loan. Upon your passing, the loan goes into a deferral period, during which the proceeds are frozen and the loan does not become due and payable. While your spouse won’t be able to access the proceeds, they can continue to enjoy a life without the burden of a monthly mortgage as long as they meet the following criteria:
- He or she must be your spouse at the time of loan closing and remain your spouse throughout your lifetime.
- Your spouse must occupy your home as their primary residence.
- Your spouse must establish legal ownership or legal right to stay in the home within 90 days of your passing.
- Your spouse must meet the HECM requirements, including maintaining the property and paying taxes and insurance.
Just like it was for you, the loan does not come due until your spouse sells the home, moves out of the home, or passes away. It is important to know, too, that during this deferral period, the loan will continue to accrue interest. It is also important to remember the spouse must still meet the responsibilities of the loan – paying property taxes and homeowners insurance and maintaining the home.