Considering a reverse mortgage but wondering how (or if) you will pay it back? This is a valid concern for many homeowners 62 or older who qualify for a reverse mortgage. Typically, borrowers only have to repay their reverse mortgage if their situation no longer meets the loan requirements. Here’s what you need to know.
What is a reverse mortgage?
A reverse mortgage is a loan option where the lender pays the customer instead of the customer paying the lender. It is available to homeowners who are 62 or older as a way to access their home’s equity while still living in their home. While they receive payments from the lender, people who get a reverse mortgage must continue to pay their homeowners insurance and property taxes.
How does a reverse mortgage work?
Like any loan, there are certain requirements that must be met to get a reverse mortgage. These include, but aren’t limited to, the property remaining your primary residence, no outstanding mortgages or liens on the home, and the house must be in “good condition”. As long as you continue to meet these requirements, it is unlikely your reverse mortgage would become due. However, if you no longer reside in the home, you will have to begin repaying your reverse mortgage.
How to pay back your reverse mortgage
Often, what triggers a reverse mortgage to become due is when the borrower(s) no longer utilize the property as their primary residence or permanently vacate the home. When the time comes for you, or your heir(s), to repay a reverse mortgage there are many ways to do so.
If you are moving out of the home, you can use the proceeds from the home sale to pay back your reverse mortgage. If your home’s value exceeds what you received in your reverse mortgage, you may be able to retain any remaining home equity after you have repaid the lender.
On the other hand, if your reverse mortgage becomes due, but you are remaining in the home, you can refinance your reverse mortgage into a traditional mortgage and use those funds to repay your reverse mortgage. Typically, this is an option when you have received payment for all of the home equity you had available.
Another option is to use personal funds you may have which includes savings, investments, or other assets. However, use discretion if considering this repayment method so that you don’t end up depleting your personal funds too much.
The best first step you can take when considering a reverse mortgage, and how to repay it, is to talk with a financial advisor. Remember, reverse mortgages are designed to assist homeowners 62 or older, but every financial situation is unique which is why you need to be proactive in your planning.
Your local PrimeLending loan officer can help educate you on your reverse mortgage options and what it takes to get one. Connect with them today to learn more.
These are brokered loan products. Not available in the following states: NY, NC, or HI. All credit decisions for brokered loan products will be made by the third-party lender. Restrictions and limitations apply. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners’ insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure. As required by FHA, you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance. Your current mortgage, if any, must be paid off using proceeds from your HECM loan. If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this. Generally, the money received is not considered income and could be tax free, please consult your tax advisor and appropriate government agencies for any effect on taxes or government benefits.
