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Reverse Mortgage Payments

(From 1 Minute Recap)

They do pay us back when they

• Sell
• Move
• Or pass away

Most people choose that last choice; they plan on staying in their home as long as they can.  Does that sound like your situation?

There are no monthly payments required in a reverse mortgage.  The loan becomes due and payable when one of the three conditions above is encountered.

Payback of a Reverse Mortgage When the Borrower(s) Sells the Home

This works the same way as someone with a regular mortgage would the payoff.  Once an agreement with a buyer is made, an escrow will be set up.  When all the conditions of the sale are met by the buyer and seller, the escrow officer will disburse the funds.   One of the checks will go to the lender of the seller's loan.  Another check will go to the seller.  The amount going to the seller will be the selling price minus the loan and other costs.

Payback When The Borrower(s) move

When the borrower moves, the loan becomes due and payable.  This can usually happen in two ways.  The borrower may have bought another home to use as their principle residence but choose to keep the original home as a second home, rental or for their children to use.  Other times, the borrower may need to move into an assisted care or nursing home. 

When a borrower moves, they need to make arrangements to payoff their reverse mortgage.  They may take out a regular mortgage to do this.  They may have enough money to payoff the loan with out needing a mortgage.  They may also take out a reverse mortgage on their new principle residence to payoff the other reverse mortgage.

In the case of someone moving to an assisted living or nursing home, there are different guidelines depending on the situation.  To begin with, there is a 12 month grace period.  If the borrower is gone six months and returns to the home the loan is not yet declared due and payable.  If the borrower needs to go to an assisted living or nursing home again, they clock starts over, even if it is within the original 12 month period.

Once the time away from the home and in an assisted living or nursing home has been 10 or 11 months, the borrower or someone helping them may decide they will likely never return to the home.  That would be the time to decide how to payoff the reverse mortgage.  The answer is usually to sell the home.

Note, when there are two borrowers, both are still living and only one goes into an assisted living or nursing home, the home is still occupied by one of the borrowers.  This means there is no clock ticking towards that 12 month grace period since the home is still owner occupied. 

Payback When The Borrower Passes Away

When the last surviving borrower passes away, the loan is due and payable.  If there are two borrowers and the first one passes away, the loan remains active.  The loan is good for all the borrowers life times.

The terms of the reverse mortgage require the loan to be paid back within 6 months of the death of the last borrower.  However, typically, HUD will allow two 90 day extensions if the executor/successor trustee requests them.  The extensions have to be requested prior to the end of the fifth month.  There has to be a good reason.  A typical reason might state the home has been on the market for sale, the real estate agent believes it is priced correctly for the current market and it is expected to sell soon.

Paybacks When Not Required

There are no prepayment penalties and payments of any size can be made at any time during the course of the loan.  There are very specific requirements as to how the payments are credited but, in general, the balanced is reduced (meaning interest won't grow as fast) and the Line of Credit is increased (meaning more money to use later). 

If the full amount is being paid off care should be taken if the borrowers wish to retain the reverse mortgage but with a zero balance accruing interest.  Make sure the servicing department knows your intentions.  If they do not and receive a payoff zeroing the balance, they will accept the payoff and close the reverse mortgage.  A new reverse mortgage would then be needed to access the equity in the home again.

 To Different Ways of Accessing a Reverse Mortgage                   To The Basics Index