Reverse mortgages provide seniors with an opportunity to take out a home loan on the equity of their current home. Seniors can continue to live on their property without making any additional mortgage payments. Interest is added to the balance of the loan.
With a reverse mortgage, seniors do not need to worry about paying back their loan until one of the following occurs:
- The borrower(s) have passed away.
- The borrower(s) have moved out.
- The borrower(s) have decided to sell the home.
Reverse mortgages have no specific due date. Rather, the loan becomes due when the borrowers are no longer living inside of their home.
If you decide to sell your home or move to a new location, your lender will first take their share of the sale proceeds to pay back the loan. The loan is insured, so the homeowner does not have to worry if the property has lost value. They can never owe more than the home can be sold for.
If the homeowner passes, the process is a little different. Like other types of mortgages, after death your home will be passed on to your heirs. Your heirs will then have the choice to keep the home, or to sell the home on the open market.
- If they choose to keep the home, they can purchase the home for 95% of the appraised value or the loan balance, whichever is less. Talk to the lender about options for repayment to determine if it is financially worthwhile.
- If they choose not to keep the home, they have the option to walk away and let the lender sell the home without any penalty or mark against their credit, no matter what the home sells for in the future.
Reverse mortgages debts cannot be passed on to the heirs, as they are known as non-recourse loans. However, it is imperative that they immediately contact the lender to determine the timeline for repayment.
Your lender will determine how much time you have to try to sell the home, and let you know what steps you need to take in the process.
Is a Reverse Mortgage Right for You?
It’s not uncommon to have questions about reverse mortgages. The loan originators here at Open Mortgage are more than happy to help. If you have any additional questions on what happens after a reverse mortgage loan is due, please contact our team today.