When You Might Need to Pay Back a Reverse Mortgage
There are a few different scenarios in which a reverse mortgage, also known as a home equity conversion mortgage (HECM), will come due.
Death
One of the most common scenarios in which a reverse mortgage will need to be repaid is following the homeowner’s death.
No Longer Occupying the Home As a Primary Residence
If you move out of the home and it is no longer your principal residence, or you spend more than 12 consecutive months away from home, such as being in a hospital, you’ll have to repay the loan.
Selling the Home
If you sell the home you’re using to secure a reverse mortgage, you’ll have to repay the balance of the loan before you can take any of the proceeds for yourself.
Foreclosure
If you wind up going into foreclosure because you’ve failed to keep your home in good repair or pay essential property taxes and insurance, you may have to repay the balance of the debt.
How to Pay Back a Reverse Mortgage
If you’re trying to pay back a reverse mortgage, there are multiple ways you can do that.
Sell the Home
The simplest way to pay back a reverse mortgage is simply to sell your home. The money you receive from the sale goes toward paying off the loan’s balance. If there’s extra, you get to keep whatever is left over. If the proceeds are not sufficient to cover the debt, the mortgage insurance will pay off the remaining balance.
Pay Off the Balance
A reverse mortgage is simply a unique type of loan. If you have the cash on hand to pay off the outstanding balance, you can pay off the loan by sending a payment to the lender.
Refinance the Loan
Another option for someone looking to pay back a reverse mortgage is to refinance it. Reverse mortgages are unusual in that they let the borrower receive money and don’t require payments, but they can be refinanced like any other loan. If you have a reverse mortgage, you can refinance it to another reverse mortgage to adjust its terms. You can also refinance the loan to a traditional mortgage by getting a new mortgage and using the proceeds to pay off the existing balance. If you do, you’ll be left with a traditional mortgage that requires monthly payments, and you won’t be able to draw cash out of your home’s equity any longer. However, you’ll be free of restrictions on how you use the home, such as being unable to move out of the home without having to repay the loan immediately.
Raising the Money to Pay Back a Reverse Mortgage
Real estate is incredibly valuable, which means reverse mortgage balances can often rise into six figures. Few people have the cash available to pay off a $100,000 or more loan in one go, meaning they’ll need to raise money if they want to pay off their loan. That’s why selling the home is one of the most common ways to pay off the balance of a reverse mortgage. Another common strategy is to refinance the loan by getting a new mortgage and using the funds to pay off the balance of the loan. If a loved one with a reverse mortgage passes away, their heirs may want to pay back the reverse mortgage instead of having to sell the home to repay the debt. Your heirs can pay off the loan by paying the lesser of the full loan balance or 95% of the home’s appraised value. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
