It’s not uncommon for seniors to take out reverse mortgages to supplement their retirement income. These reverse mortgage home loan products alleviate the burden that comes with making monthly mortgage payments, and you get to stay in your home as long as you continue to maintain it properly.
But what if you decide a reverse mortgage is no longer ideal for your financial situation? You’ll have to repay the lender. Keep reading to learn more about what causes reverse mortgages to become payable, what happens if you fail to pay, and your options to get out of a reverse mortgage sooner.
Do You Have to Make Monthly Payments on a Reverse Mortgage?
No, you’re not required to make monthly payments on a reverse mortgage. Instead, the lender pays off your current loan, and the remaining equity from the sale is distributed to you. You can choose to be paid in a lump sum, monthly or through a line of credit.
What Are The Typical Payment Terms of a Reverse Mortgage?
Unlike traditional mortgages, reverse mortgages do not require monthly principal and interest payments. However, it will become payable when any of the following circumstances occur:
- You stop using the home as your primary residence.
- You sell the home, which prompts a title transfer.
- You are placed in a nursing home or assisted living facility.
- You fail to maintain the home properly.
- You become delinquent on property taxes or homeowners insurance payments.
- You fall behind on CDD or HOA fees (if applicable).
What Happens if You Don’t Pay Your Reverse Mortgage?
If your reverse mortgage becomes payable and you fail to take care of the balance, the lender will foreclose on the home and apply the sales proceeds to the balance.
Ways to Pay Back a Reverse Mortgage
If you’re looking to get out of a reverse mortgage, you have several options to pay it back.
1. Rescind the Reverse Mortgage
Borrowers have the legal right to cancel the reverse mortgage loan within three days of closing. If you decide to move forward with this option, which is referred to as the right of rescission, you must notify the lender of your request in writing.
The lender must return the closing costs and fees you paid to execute the transaction within 20 days. But if the three-day window has passed, you won’t have the ability to cancel the loan agreement without incurring penalties.
2. Pay It Off Out of Pocket
You can also use your own money to pay off the remaining balance on your reverse mortgage. However, if you don’t have the funds readily available to pay in a lump sum, consider creating a payment schedule that’s feasible and allows you to pay off the loan within a decent time frame.
Once it’s paid off, you’ll be able to stay put until you pass away. And your heirs won’t have to worry about your home being sold by the lender or digging deep into their pockets to cover the balance.
3. Sell Your Home
Selling your home is a much simpler way to get out of a reverse mortgage than exercising the other options listed here. Assuming you have a sizable amount of equity or your home is paid off, you can sell it and use the earnings to pay off the reverse mortgage balance. The proceeds remaining from the sale are yours to keep.
If you’re upside down on your loan, you won’t pocket money from the sale. Still, you won’t have to come out of pocket for the difference if you have a home equity conversion mortgage (HECM) loan. Instead, the FHA insurance will take care of the deficit since it’s a non-recourse loan.
4. Take a Loan to Pay It Off
Some borrowers opt to take out a conventional home loan to get rid of their reverse mortgage. Be mindful that this financial move means you’ll have to resume making monthly mortgage payments. However, you’ll have access to the equity in your home as it grows, and your heirs may not have to jump through as many hoops as they would with a reverse mortgage when you pass away.
Remember that conventional loans have down payment and closing cost requirements. Be sure to assess your budget to ensure these costs are affordable before moving forward.
5. Refinance Your Reverse Mortgage
Would you prefer to keep a reverse mortgage on the home but with different terms? Refinancing with another lender could be ideal. And depending on market conditions, there may be lower interest rates available. Or you can possibly switch to a fixed-rate reverse mortgage if you currently have an adjustable-rate reverse mortgage. You could also have the ability to tap into more equity if the value of your home has increased.
How to Get a Reverse Mortgage
It’s relatively easy to apply for a reverse mortgage. The steps are quite similar to what you’d expect if you were seeking a traditional mortgage.
You’ll need to reach out to the lenders you’re considering and ask about their eligibility criteria. Then, narrow down your list to one or two options, complete the application and submit any documents they’ll need to make a lending decision. In most instances, the application can be made online, and you can also submit your supporting documents by uploading them to the lending portal.
Next, you’ll wait for the loan originator to review your application along with any contents you submitted and check your credit to ensure it meets the general guidelines. If so, your entire file will be passed on to the underwriter for their review. You’ll be notified if any additional documents are needed to reach a lending decision.
In the meantime, the lender will request a title search to confirm the property is free of any liens or claims by creditors. An appraisal will also be done for the lender to confirm the fair market value of the property and ensure you have enough equity to qualify for a reverse mortgage.
The final step before you can start receiving funds is the “clear to close” you’ll get from the lender after the underwriter has signed off on the loan. You’ll also need to communicate how you wish to receive your proceeds – monthly, in a lump sum or through a growing line of credit.
If you’re ready to start researching lenders and move forward with the application process, be sure to include Top Flite Financial on your list of options to consider. As a reputable full-service mortgage lender and leading originator of Home Equity Conversion Mortgages (HECM) backed by the federal government, they prioritize customer satisfaction and are accredited with an A+ rating by the Better Business Bureau.
To learn more about how a reverse mortgage can benefit you, complete the online form on this page to request a free consultation with a Top Flite reverse mortgage expert.
