Can You Get Out of a Reverse Mortgage?
A Reverse Mortgage can have tremendous benefits for the right homeowners; however, we understand it may not be the best option for everyone. If you’re considering getting a Reverse Mortgage and you want to know what to do if you change your mind, read on.
Below, we’ll explain how to get out of a Reverse Mortgage, what you need to know about the right of rescission, and how you can better educate yourself on Reverse Mortgages so that when the time comes, you’ll be confident that you’re making the right decision.
How to Get Out of a Reverse Mortgage
Other than simply paying off the entire loan balance in full, there is one way to get out of a Home Equity Conversion Mortgage (HECM), also known as a Reverse Mortgage. However, to be able to do so, you have to act pretty fast.
Thanks to the Truth in Lending Act, HECM borrowers have what is called the “right of rescission” for a period of 3 business days. In other words, even after all mortgage documents are signed, a borrower has the right to rescind (cancel) the agreement within 3 business days. If the borrower chooses to rescind, the lender has 20 days to cancel the mortgage contract and return any fees and closing costs within 20 days.
The right of rescission provides borrowers with the ability to change their mind within the 3 business days and protects them against being charged any cancellation penalties.
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More on Getting Out of a Reverse Mortgage
3 Business Days, Explained
Your right to rescind expires after three business days or “working days.” More specifically, that means you have from midnight the day after the loan documents were signed to midnight on the third business day thereafter. And for clarification, Saturdays are considered business days but Sundays are not. Legal public holidays are also not considered business days.
For example, let’s say you signed the documents on a Friday. Your right to rescind would become active at midnight the next day (Saturday) and would expire on midnight the following Tuesday (Sunday is skipped because it is not a business day). Presuming there were no federal holidays during this time period, by 12:01 am Wednesday, the loan would be funded and right to rescind would no longer be active.
How to Rescind in a Reverse Mortgage
In order to rescind, the borrower must notify the lender in writing of their decision within the 3 business day time frame. This means the borrower must act fast if they wish to be free of the Reverse Mortgage agreement.
Your lender should provide you with two copies of a notice explaining your right to rescind and instructions on how to submit your rescission letter. Some lenders may ask you to FAX your rescission letter. Others may request you use certified mail.
Even if the lender does not receive the letter within the 3 business days, you should still be able to rescind as long as you can prove that it was sent within the allowable time frame (this can be verified through using certified mail, which is highly recommended if you are sending paper documents).
Again, you should stick to the method your lender requests; however, you should always keep a copy for your records and have some way of proving that the letter was sent. If you’re using FAX, keep a copy of the confirmation page, if using certified mail, keep your receipt.
Your lender should provide you with two copies of a notice explaining your right to rescind, along with a Truth in Lending Disclosure. If you did not receive these documents, or if they were not correct, you may have up to 3 years from the date of closing to rescind, according to the Consumer Financial Protection Bureau. If this situation applies to you, contact an attorney.
What if My Right of Rescission Period Expired?
If it has been more than three business days since you signed your Reverse Mortgage documents, the only way to get out of the loan is to pay off the mortgage balance. If you are unable to pay off the balance in full, you may want to consider refinancing into a conventional mortgage. Alternatively, you may sell your home and use the proceeds to pay off the Reverse Mortgage.
Very few Reverse Mortgage borrowers rescind. This is largely due to the fact that the government-mandated counseling sessions potential borrowers must have in order to get approved for a Reverse Mortgage. These counseling sessions aim to inform the borrower of the risks of Reverse Mortgages as well as the rewards. Thanks to this important step in the loan process, the majority of Reverse Loan borrowers enter the mortgage agreement confidently.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.