Articles by Joel Gurman

How is a Reverse Mortgage Paid Back?

Comments Off 03 February 2010

When do I pay back my reverse mortgage? And who is responsible? What exactly happens when the loan becomes due?

They’re good questions, and some of the most common among reverse mortgage clients. So let’s get you some answers.

First, and most important to understand: When you get a reverse mortgage, the lender does not own your home. A reverse mortgage is a loan against the property. The title remains in the name of the borrower(s) and the lender is only repaid the loan balance or home value; whichever is less. No repayment is required until the borrower(s) no longer lives in the house.

When do you pay the loan back?

The loan is due and payable when the last remaining borrower sells the property, permanently leaves the home, or passes away. As long as you are living in your home, you won’t make a single house payment again. When you no longer occupy your home as your principal residence, the loan becomes due.

The amount that is due will include:

  • The total funds you received from the mortgage
  • The initial fees and closing costs financed as part of the loan
  • Accrued interest

Who can pay it back? Let’s go over some specific situations.

1. The borrower decides to sell their home

If the borrower wants to sell their home and move somewhere else, the loan becomes due. The cash advances they have received plus accumulated interest and any upfront costs that were financed initially will be added to the loan balance that must be paid back in order to relocate. When the home is sold, the homeowner can use the money received from the sale of the home to pay off the reverse mortgage. Then any additional income from the sale of the home is theirs to keep.

2. The homeowner moves to an assisted living community or passes away

a. If the homeowner moves to an assisted living community or passes away, the loan becomes due six to twelve months following the date they no longer occupy the home. This allows time for the house to sell so the proceeds can be used to pay off the loan. Then any additional money left over would go to the homeowner or their heirs.

b. Or, if the homeowner or their heirs want to keep the home, repayment can be accomplished by refinancing the existing reverse mortgage into a conventional mortgage loan. Or simply paying off the loan in full and keeping the house.

Hopefully this helps clarify exactly what happens after the reverse mortgage loan matures. Due to the safeguards that have your best interest in mind, when it comes to managing finances and maintaining a comfortable retirement, government-created reverse mortgages are a win-win situation for both the homeowner and their family.

Make sure to read up on common reverse mortgage myths, and ask a reverse mortgage expert to answer your questions in detail. Make your decision only after you feel absolutely comfortable with your understanding of the program. See Reverse Mortgage FAQs .

Before moving ahead with a reverse mortgage, I recommend that you consult your financial advisor, tax advisor and/or a reverse mortgage expert to review your specific situation.

For a free, no obligation quote, contact One Reverse Mortgage toll free at 800-401-8114.

© 2016 Joel Gurman