When the Loan Ends
Reverse mortgages are advantageous because all loan payments are deferred as long as the property remains the borrower’s primary residence. There is no obligation to repay the loan until the owner dies, the home is sold, or the owner otherwise vacates the property (for example, to move into an assisted-living facility).
So, what happens when does the loan does end?
The reverse mortgages are usually paid off with proceeds from the sale of the house; the owner will receive any profit made from the difference between the proceeds and the loan. If the heirs of the estate intend to sell the home to repay the reverse mortgage loan, they are able to keep any proceeds or profits from the sale of the home after the loan balance has been paid off. If the proceeds from the sale of the home are not sufficient to pay off the reverse mortgage loan, the lender absorbs the difference.
In cases where the owner has moved out, the lender typically grants the borrower(s) one year to sell the home or obtain financing to pay off the reverse mortgage balance. If the previous owner has died, the lender typically grants the heir or one year to sell the home or obtain financing to pay off the reverse equity mortgage. In both cases, verification is required, but the type of proof may vary.
Because a reverse equity mortgage is a non-recourse debt, the borrower can never be forced from their home because of monies owed. However, there are still things you will have to do to keep a reverse mortgage in good standing. Examples of activities that secure good standing include regular maintenance of the home and keeping home insurance and real estate taxes current.
There are situations that can result in reverse mortgage ending prematurely. The lender can cancel the reverse home mortgage and force repayment if:
• The borrower files for bankruptcy.
• The borrower rents out part of the home.
• The borrower adds a new owner to the title of the home.
For the above reasons, reverse mortgages are best suited for potential borrowers who are not inundated with debt, plan to stay in their home for at least five years, and have no interest in changing their living situation.