With any loan, one concern is the issue of repayment. When is the loan due? Who is responsible for paying it back? These are common questions, and it is no different for a reverse mortgage. To better answer the question of who is responsible for paying back a reverse mortgage, let’s first look at when a reverse mortgage comes due. The timing of when the loan comes due is based on different situations. It is these situations that also determine how the loan is repaid and who is responsible for paying it back.
When a Reverse Mortgage Comes Due
You are not required to make payments on a reverse mortgage until it comes due, though you are responsible for paying property taxes, homeowners insurance, and home maintenance costs. As long as you uphold these financial obligations of the loan, the reverse mortgage will not come due until you sell the home or move out, or you pass away. When the loan comes due under one of these circumstances, this is who pays back the loan.
If You Sell the Home or Move Out
One of the eligibility requirements of the reverse mortgage is that your home must be your primary residence. When your home is no longer your primary residence – meaning you live in the home for less than half the year – your loan will come due. At this point, you will be responsible for paying it back. Typically, the proceeds from the sale of the home pay back the loan. Any remaining proceeds from the sale are yours to keep. Remember, you pay back only what you borrow, plus any interest that has accrued over time.
If You Pass Away
Many people worry that their heirs will be left to pay back the loan if they pass away. Heirs actually have a few options. If they wish to keep the home, they can refinance into a traditional mortgage. They can purchase the home for 95% of the appraised value or how much is owed on the loan – whichever is cheaper. If they want to sell the home, they can use the proceeds from the sale to pay off the loan. Any remaining money is theirs to keep. They also have the option of signing the deed over to the lender and walking away from the home entirely with no responsibility to sell the home or pay the loan.
A Non-Recourse Loan
Government-insured reverse mortgages are non-recourse loans. That means, if the home sells for less than what is owed on the loan, FHA insurance will pay the difference – not you, and not your heirs.
Other Repayment Questions
If you have more questions about repayment, it may be easier to call one of our licensed specialists. They can answer your individual questions and provide answers based on your individual situation. The best part is, there is no obligation to move forward.