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How Does Repayment Work With A Reverse Mortgage?

One of the most often asked questions of borrowers seeking a reverse mortgage is, “When do I have to pay back a reverse mortgage loan?” Unlike a traditional mortgage, a reverse mortgage is repaid through monthly installments. The answer to the question is unique to each borrowers situation, but the short answer is that an HECM (Home Equity Conversation Mortgage), a reverse mortgage insured by the FHA (Federal Housing Administration), must be completely paid off when the last surviving borrower passes away, sells the home, or moves out of the house for good (lives outside of the house for one continuous year). Borrowers may also have to begin repayment if they default on the loan terms, like not paying taxes or insurance.

The reverse mortgage becomes payable when any of the above scenarios occur. Most often, borrowers or their heirs repay the loan by selling the home and paying the reverse mortgage in full. After the sale of the home, and the mortgage balance is repaid, the borrows or heirs keeps any remaining proceeds.

In some cases, the loan balance may be greater than the home’s sale price. Fortunately, HECM reverse mortgage borrowers are only responsible for the amount their home sells for, even if the loan balance surpasses this amount because the insurance, backed by the FHA, covers the remainder of the balance.

Borrowers can also choose to make monthly payments, typically at no pre-payment penalty from the lender. Another option, should an heir choose to keep the house, is to refinance the reverse mortgage into a traditional mortgage or buy the house using other payment options.

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For more repayment details, find your specific situation on this list, provided by the Consumer Financial Protection Bureau, a government agency built to protect consumers:

If you are the only borrower on the HECM reverse mortgage loan and:

  • You live alone, your loan will have to be paid off when you die, sell the home, or move out.
  • You live with a spouse but they are not on the mortgage, your non-borrowing spouse may be eligible to remain in the home. Read more about surviving spouses and reverse mortgages here.
  • You live with children, other relatives, or unrelated roommates, your loan will have to be paid off when you die, sell the home, or move out.

If you are a co-borrower on the HECM reverse mortgage loan and:

  • You live alone, your loan will have to be paid off when you die, sell the home, or move out.
  • You live with a spouse or partner, your loan will have to be paid off when both you and your co-borrower have died or moved out. Your co-borrower can continue to live in the home without paying off the loan after you die or move out. Likewise, you can continue to live in the home without paying off the loan if your co-borrower dies or moves out.
  • You live with children, other relatives, or unrelated roommates, your loan will most likely need to be paid off when both you and your co-borrower have died or moved out. If you or your co-borrower is still living in the home, then your roommates, children or other relatives can continue to live there too.

Reverse mortgages can be a valuable financial planning tool, but they can also be difficult to understand. Do your homework upfront, and consult with an experienced reverse mortgage lender who specializes in HECM insured reverse mortgage loans.

Learn more about how people are using home equity conversion mortgages for purchasing homes:

Please keep in mind that the reverse mortgage industry is 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.