But what happens at the end of a reverse mortgage? ON common myth is that the lender can take your home when the loan is due; that’s not the case. Let’s look at something indeed happens.
Three Common Ways to Exit a Reverse Mortgage
A reverse mortgage usually ends in three ways: either the homeowner dies; they sell their property and move away; or they move to a retirement home or long-term care. (Loan default is another scenario that we will discuss later.)
When the last surviving homeowner dies
If more than one person owns the home (as in the case of spouses, partners, or co-owners), the reverse mortgage loan is due when the last owner dies. In this case, the borrower’s estate must repay the entire reverse mortgage amount – the loan principal plus interest and fees. Often times, the property is sold by the borrower’s heirs, who use the proceeds to pay the amount due. However, if they want to keep the house, they can use other means of repaying the loan.
When the last surviving homeowner sells
When the homeowner decides to sell, the loan becomes due. It is not due immediately after the last owner dies. For example, on the Equitable Bank reverse mortgage terms, you have 180 days to complete the repayment.
When the last surviving homeowner moves to a retirement home or long-term care facility
If you or your surviving co-owner move to a retirement home or long-term care, You may have up to a year to repay the reverse mortgage. Make sure you read the fine print and ask your lender about repayment deadlines before you commit.
What if the borrower defaults on a reverse mortgage?
You may be wondering how a borrower can default if there are no payments due by the end of the mortgage. In this case, the default setting means:
- Let your house deteriorate and reduce its original value.
- You don’t pay your property taxes and insurance payments.
- Use of credit money for illegal purposes.
- Lies on your reverse mortgage application.
If so, you could face foreclosure and force the sale of your home. The proceeds from the sale would be used to pay off the reverse mortgage debt. Realistically, this is extremely rare and lenders prefer to work with homeowners on alternative solutions so that they can stay in their home.
What about heirs?
There is concern that seniors taking out a reverse mortgage will no longer have inheritance for their children or grandchildren. If the owner of the house dies or sells their house, the heirs have two options: they can sell the house, pay off the loan with part of the proceeds, and keep the rest; or they can settle the loan with other money and keep the house.