How Is a Reverse Mortgage Paid Off?

4 Ways to Pay Off a Reverse Mortgage

We have touched on paying off a reverse mortgage several times within this guide, but we need to delve into in greater depth. We’ll do that in this section. First, it is important to understand that while reverse mortgages are billed as being worry-free because you don’t need to make a monthly payment, they do eventually come due. It just might not be you who is stuck with the bill. So, how is repayment handled?

Making Monthly Payments

While not required, you are allowed to make any size payments per month (or on whatever other schedule fits your needs) if you like. All of this money will go toward paying down the balance and interest accrued during the life of the loan. For homeowners who want to leave their home to their heirs and who are worried about how those heirs will manage to pay off the reverse mortgage, this is really the only option.

Selling Your Home

If you decide that you are ready to downsize, move somewhere where the weather is more clement, or get closer to your kids and grandkids, it is time to sell your home and buy another. This provides you with the most expedient way to pay off your reverse mortgage. Simply put your home on the market, and then use the proceeds to pay what you owe on the mortgage.

The remainder is yours to use as you like, including as a down payment on your new place. Note that you can also take out a second reverse mortgage, and roll the purchase of your new home into that in a single transaction. It comes with high down payment requirements but may be beneficial.

Selling the home is also what may have to happen should you pass away and there is no co-borrower listed on your mortgage, and/or your heirs do not have the cash or desire to pay the mortgage. In this instance, the estate will sell the home, pay the mortgage out of the proceeds, and add any surplus to the estate itself to be transferred to your heirs per your estate planning wishes.

Refinancing Your Reverse Mortgage

If your heirs want to keep the home after you pass, but do not have the cash to pay the mortgage off on their own, they could consider refinancing the reverse mortgage into a traditional mortgage, or even into an FHA 203(b) mortgage. However, chances are good that a 203(k) loan will not be possible due to the FHA’s requirement that qualifying properties need substantial renovation, and the requirement for reverse mortgage holders to properly maintain their properties.

Letting Your Reverse Mortgage Go

In some instances, you or your heirs may not want to deal with selling the home at all. In this case, communicate your desire to the lender, and they will sell the home. Note that this is technically foreclosure, so you will not be entitled to any overage on the sale price as you would if you were to sell it yourself or if the home were to be sold by the estate after your passing. However, it may be the right path forward depending on the situation, the real estate market, and the amount owed on the mortgage.

If you’d like to learn more, simply fill out the form below and a friendly reverse mortgage specialist will get in touch!