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Table of Contents

How Do You Pay Back a Reverse Mortgage?

Strategies for settling the outstanding balance

Person analyzing home finances
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Reverse mortgages are loans that let you turn your home equity into a source of income while allowing you to remain in your home. The reverse mortgage must be repaid when you move out of your home or pass away. This is often accomplished by selling the home, but there are other strategies for settling the outstanding balance. Learn more about your reverse mortgage repayment options.

Key Takeaways

  • Reverse mortgages let you access your home equity without making payments.
  • With a reverse mortgage, you can continue living in your home.
  • A reverse loan is usually repaid by selling the home, but you may also be able to refinance the loan or raise enough money through other means to settle the balance.

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.

If a qualifying spouse is still living in the home, they will have the right to do so without immediate repayment.

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.

There are no prepayment penalties on reverse mortgages, so you can make larger payments or pay off the loan at any time.

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.

How Long Do You Have to Pay Back a Reverse Mortgage After Someone Dies?

When the borrower on a reverse mortgage dies and the loan becomes payable, the heirs have 30 days to repay the loan. They can also choose to turn the home over to the lender to satisfy the debt, or request an extension of up to one year.

How Much Money Do You Get From a Reverse Mortgage?

The amount of money you can receive from a reverse mortgage varies based on the appraised value of the home; the age of the youngest borrower or eligible non-borrowing spouse; the current interest rates; and the lesser of appraised value, the HECM FHA mortgage limit ($970,800 for 2022), or the sale price.

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Article Sources

  1. Consumer Financial Protection Bureau. “When Do I Have To Pay Back a Reverse Mortgage?

  2. Consumer Financial Protection Bureau. "If I Have a Reverse Mortgage Loan, Will My Children or Heirs Be Able To Keep My Home After I Die?

  3. U.S. Department of Housing and Urban Development. “How the HECM Program Works.”