Repaying a Reverse Mortgage

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Potential reverse mortgage borrowers might feel like they are taking out a loan for life. However, the terms of a reverse mortgage actually allow borrowers the flexibility for repaying a reverse mortgage without penalty at any time.  Paying back a reverse mortgage is much like paying back a conventional mortgage, allowing homeowners the choice to remain in the loan as long as it suits them or to pay it back at any time during the life of the loan.  

Why Would Someone Repay a Reverse Mortgage? 

There are many personal reasons why a borrower might want to pay back a reverse mortgage. Many people want to retain ownership of their homes to pass them along to heirs. By paying back their reverse mortgage, they avoid the hassle of their heirs having to pay back the loan upon maturity.  

Other borrowers might find that they no longer need the funds that a reverse mortgage provides. Regardless of the reason, borrowers can always pay back a reverse mortgage without penalty. 

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Options for Paying Back a Reverse Mortgage  

The flexibility of a reverse mortgage allows borrowers several options to pay back the loan. These include: 

  • Selling the home. The sale of the home automatically triggers loan maturity, requiring payback terms to be satisfied. This can happen at any time during the life of the loan. The borrower or their heirs can simply pay back the reverse mortgage with the sale proceeds and keep the profits if there are any.  
  • Refinancing into another reverse mortgage. Like a conventional mortgage, borrowers with equity remaining in the home can refinance their reverse mortgage and pay back the balance due. In this instance, a borrower might find more favorable interest rate terms, or they might want to qualify for a larger loan amount.  
  • Refinancing into a conventional loan. Some borrowers may find that they no longer need the monthly payments the reverse mortgage provides them. 
  • Paying the loan back in cash. At any point during the life of the loan, homeowners can always pay off the loan balance in cash. This is a suitable option when the borrower has cash reserves on hand and wants to retain the equity in their homes.  

Things to Consider When Repaying 

The most common way of repaying a reverse mortgage is by selling the home once the last surviving borrower has passed. The proceeds of a sale usually satisfy the loan amount. If they do not, outstanding debt from a reverse mortgage is not passed on to heirs

Before making any major financial decisions, consider consulting with an independent financial professional to ensure repaying a reverse mortgage is right for you and your situation.