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When/How Does the Reverse Mortgage Get Paid Off?

January 26, 2024

Senior Question:  I got a reverse mortgage and I'm not sure about when it is due or how it will get paid:

Renee's Response: The short answer is that when the last borrower on the loan decides to move out voluntarily or because they die or are in need of too much care to stay in the home (and they've been moved out of the house) then the mortgage has to be paid off. 

The longer answer to the question "When/How Does the Reverse Mortgage Get Paid Off?"  will be different depending on the scenario.

1. The simplest ways to pay of the mortgage is to sell the home to an heir, relative or on the open market. 

  •  If the mortgage is less than the value of the home then the sale will mean that net proceeds (profit from the sale) go to the owner or his/her/their heirs.
  •  If the mortgage exceeds the loan balance, then FHA will accept 95% of appraised value as the payoff leaving the owner or heirs the ability to dispose of the home without creating a foreclosure or a negative experience.  

2. If the mortgage exceeds the loan balance, and the owner/borrower on the loan no longer wants to live in the home, or if they die or move out permanently then one option is to communicate with the loan servicer and if an appraisal shows that the home is valued below the loan balance, then a deed in lieu of foreclosure can be given effectively you, the owner or heir, are "turning over the keys" and walking away with no adverse affect on your credit.  This is because the Home Equity Conversion Mortgage loan is a non-recourse loan.

3. When the last borrower leaves the home for whatever reason (death or choice) the home must be sold within 6 months.  Under extenuating circumstances, FHA has the option to be flexible and work with the owner and/or heirs and real estate agent but the rule is to sell within 6 months.  As soon as an event occurs to trigger sale (the borrower leaves the home because of death or by choice), the borrower/owner or heir should contact the servicer immediately and keep open communication.  The mortgage is considered due and payable at the time that the owner/borrower is no longer an owner occupant.  

4. The owner/borrower will never be required to give up title as long they live in home as their primary residence, maintain the home (keep it in good repair) and pay the taxes and insurance and homeowner association fees if required.  

Renee Duval
Your Reverse Mortgage Resource

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Renee Duval
The reverse mortgage is like a jack-knife. There are many tools that are used for different reasons by different people with different needs. It's very situational. The blog is designed to give real-life stories about how a reverse mortgage can help real people.
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The reverse mortgage is like a jack-knife. There are many tools that are used for different reasons by different people with different needs. It's very situational. The blog is designed to give ...
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