What Happens to a Reverse Mortgage When You Move?
Home Equity Conversion Mortgage (HECM) loans (also known as Reverse Mortgages) do not require the borrower to make monthly payments like a typical mortgage. Instead, the lender pays the borrower. This loan structure can be ideal for certain older homeowners, as it can help them boost their cash flow and allow them to stay in their homes longer as they age. But what happens to the home, and the reverse mortgage, when the borrower moves out?
Reverse mortgages/HECMs become due when the last borrower on the mortgage sells the home, passes away, or moves out of the home for 1 year or longer. That means, if you have a reverse mortgage, and you move out of the home permanently, the mortgage will likely be called due.
Typically when a reverse mortgage borrower moves out of the home for 12 months or more, he or she is relocating permanently to an assisted living or long-term care facility, or moving in with family or loved ones. In these instances, the most common solution is to sell the home in order to pay off the reverse loan balance. However, this can put some families in a difficult position. For example, if there are any people living in the home who are not on the mortgage, they will likely need to vacate the home once the reverse loan borrower moves out or passes away. There have been recent changes to the program to protect non-borrowing spouses from having to move out once their borrowing spouse leaves; however, other relatives or roommates will likely face having to relocate if they’re in this situation.
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According to the Consumer Financial Protection Bureau, here are some other scenarios based on a borrower’s circumstances:
If you are the only borrower on the HECM reverse mortgage and:
- You live alone, your loan will need to be paid off if you move to a nursing home or assisted living for more than 12 months. This will usually mean selling your home to pay off the loan.
- You live with a spouse or partner, your loan must be paid off if you move to a nursing home or assisted living for more than 12 months. This will usually mean selling your home, and your spouse or partner will most likely have to move.
- You live with children, other relatives or unrelated roommates, your loan must be paid off. This will probably require selling your home, and your children, relatives, or roommates will most likely have to move.
If you are a co-borrower on the HECM reverse mortgage and:
- You live alone because your co-borrower has passed away or already lives elsewhere, your loan must be paid off if you move to a nursing home or assisted living for more than 12 months.
- You live with a spouse or partner who is a co-borrower on the reverse mortgage, your co-borrower can continue to live in the home if you move to a nursing home or assisted living. But if your co-borrower needs to move out too, and both of you are absent from the home for more than 12 months, your loan must be paid off.
- You live with other relatives or unrelated roommates. If your co-borrower still lives in the home, your other relatives or roommates can continue to live there too when you move to a nursing home or assisted living. But if your co-borrower also moves out and both of you are absent from the home for more than 12 months, your loan must be paid off. This will probably require selling the home, and your relatives or roommates will most likely have to move.
Because a reverse mortgage loan can be repaid at any time without penalty, a borrower can sell the home with a reverse mortgage. The good news is if the loan balance is less than what the home is worth when it’s sold, the borrower keeps the equity difference.
Before a borrow puts the house on the market, he or she should first verify the loan payoff amount in writing with the mortgage loan lender. Most payoff quotes will expires, so once the borrower has the payoff quote in writing form the reverse mortgage lender, pay close attention to the expiration date because if it takes longer to sell the home than expected, the quote will likely change, and more money will be needed at the closing in order to pay off the reverse mortgage loan.
Keep in mind there are different types of reverse mortgage loans. Though most are insured by the FHA as part of the HECM program, there are some single-purpose reverse mortgages offered by some state and local governments and non-profit organizations that may have different requirements. To make sure you select the right program for your needs, consult with a reverse mortgage professional.