When Should You Repay a Reverse Mortgage, and How Does It Work?

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When Does Repayment Begin?

Repaying a reverse mortgage typically occurs under the following circumstances:

  1. You Move Out: If you move out of your home for any reason, such as downsizing, relocating to a long-term care facility, or selling the property, the reverse mortgage becomes due. This includes moving out for an extended period, even if you intend to return eventually.

  2. You Pass Away: When the last remaining borrower on the reverse mortgage passes away, the loan must be repaid. This repayment is often handled by the borrower's heirs or the sale of the property.

  3. The Home Is Sold: If you decide to sell your home, the reverse mortgage balance is paid off from the proceeds of the sale. Any remaining equity belongs to you or your heirs.

How Does Repayment Work?

Repaying a reverse mortgage involves several steps:

  1. Loan Balance Calculation: Upon triggering repayment events (moving out, passing away, or selling the home), the lender calculates the total loan balance. This balance includes the principal amount borrowed, accrued interest, and any fees.

  2. Options for Repayment: You or your heirs have several options to repay the loan:

    • Paying off the loan balance with personal funds or other assets.
    • Selling the home and using the sale proceeds to repay the loan.
    • Refinancing the reverse mortgage into a traditional mortgage.
    • Deeding the home to the lender to satisfy the loan, which allows heirs to keep any remaining equity.
    • Heirs have the option to purchase the home at 95% of its appraised value, even if the loan balance exceeds this amount.
  3. Timeframe for Repayment: Generally, lenders provide a period of several months to repay the reverse mortgage. During this time, the borrower or their heirs can explore the available options and make the necessary arrangements.

  4. Reverse Mortgage Insurance: Most reverse mortgages are insured by the Federal Housing Administration (FHA). This insurance ensures that the loan balance doesn't exceed the home's value at the time of repayment. If the loan balance is higher than the home's value, the FHA covers the difference, and the borrower or heirs won't owe more than the property's worth.

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