Repayment is not due as long as you live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to FHA requirements. You or your heirs will not be required to repay more than the value of your home at the time the loan is repaid, even if your loan balance exceeds the value of your home provided you or your heirs decide to sell the home. Best of all, any remaining equity goes to you or your heirs once the loan is repaid.
Your Reverse Mortgage may provide much-needed cash to supplement your lifestyle. However, there will come a time when your situation changes and your loan will need to be repaid.
Examples of when a Reverse Mortgage must be repaid:
- You sell your house or transfer the title to another person
- You vacate your home for longer than 12 months (in most states)
- You pass away and there is no other borrower on the title
- You do not maintain the homes condition according to FHA requirements
- You do not pay required property taxes and/or homeowners insurance
The most common situation is that the last borrower on the title passes away after living in the home until his or her death. The estate then sells the home and repays the Reverse Mortgage with the proceeds, keeping any remaining equity. Remember, when you sell, neither you nor your heirs will ever be personally liable for repaying more than the market value of your home to repay the Reverse Mortgage.
If your heirs decided to keep your home, they can do so by repaying the full loan balance.
After 15 years of living mortgage payment-free and drawing from the bank account established with the Reverse Mortgage to supplement their retirement income, Don passes away. Shirley continues to live in their home and uses the remaining Reverse Mortgage funds to pay for in-home health care and medical expenses. Five years later, Shirley passes away, 20 years after she and her husband acquired the Reverse Mortgage. The loan balance, including principal and interest, is now due. The Leightons’ children decided to sell Don and Shirley’s home.
- Scenario 1 – Home value is greater than the loan balance
The Leightons’ home continued to appreciate during those 20 years, and it is now appraised at more than the balance of the loan. Their children keep any remaining equity.
- Scenario 2 – Home value is less than the loan balance
An appraiser determines that the Leightons’ home is worth less than what is owed on the loan.
Don and Shirley’s children sell the home at market value and apply this to the Reverse Mortgage balance. However, since their Reverse Mortgage was FHA-insured, HUD makes up the difference between what the home sold for and the loan balance.
With families of their own to raise, the Leightons’ children were not able to help their parents financially. They were relieved and grateful that their parents had the opportunity to secure a Reverse Mortgage to fulfill their dreams and enjoy their retirement without the stress of financial burdens.
Reverse Mortgages are safe and secure all the way to the end. As you can see your heirs are protected in the event the home loses value thanks to FHA Insurance provided by HUD. For additional answers to your questions click the banner below for more information.