How Do You Pay It Back?

The beauty of the reverse mortgage is that it does not have to be paid back until the last survivor on the note dies or sells the home. However, there are a few specific circumstances under which the note may be called and you may be required to make recompense for the original amount and depending on the situation, accrued interest charges.

If the property deteriorates, if you move to a new home, or you do not pay property taxes or insurance on the property, the lender may call the note. But outside of those few extenuating circumstances, the money is yours to use for the rest of your life. In this case, you do not pay the loan back yourself; rather, once you die your estate sells the home and uses the proceeds to pay off the loan.

There is no penalty for prepayment, so if you decide to pay back the loan before it is due, you may choose to do so. Should your financial situation change or you come into a large sum of money and no longer need the reverse mortgage proceeds, repaying the reverse mortgage may be a good option from an estate planning point of view.

A reverse mortgage is a non-recourse loan. This means that you or your estate will never owe more than the value of your home, regardless of the total loan balance at maturity. For example, suppose you opt to take monthly payments for as long as you live in the home. Since you are quite healthy, you live longer than the actuarial tables predict. In this case, it is possible that upon your death, you would have received payments over several years that total more than the home’s value.

You needn’t worry about your heirs having to pay the difference. The insurance premiums that are included in the costs of the loan guarantee that any overage will be covered either by the federal government (in the case of HECM or Fannie Mae loans), or by the insurance company. No recourse will be taken against you or your heirs, and no assets outside of the home that has been mortgaged can be taken.