Mortgage Equity Conversion (HECM) mortgages, the most common type of reverse mortgage loan, require you to keep your property taxes and home insurance up to date. Failure to pay either of you can lead to foreclosure. In general, reverse mortgage loans must be repaid when you move out of your home or when you die. However, you may need to repay the loan sooner if the home is no longer your primary residence, if you don't pay your property taxes or homeowners insurance, or if you don't keep the house in good condition.
There are no prepayment penalties if a reverse mortgage is canceled early. Paying a reverse mortgage early is favorable in many scenarios. You can leave the house to your heirs without problems and without debts, or with a much smaller debt than you originally had. When either of these cases occurs, the reverse mortgage loan expires and is payable.
The most common method of repayment is through the sale of the home, where the proceeds from the sale are used to repay the reverse mortgage loan in full. Generally, you or your heirs would assume responsibility for the transaction and receive the remaining equity in the home once the reverse mortgage loan has been repaid. A reverse mortgage works by taking the equity accumulated in your home and using it first to pay off your current mortgage. HECM, or mortgage-for-purchase capital conversion mortgages, allow you to buy a new home and get a reverse mortgage in a single transaction.
This may require you to start making monthly loan payments and set up a new budget to make those payments. A HECM reverse mortgage ensures that borrowers are only responsible for the amount their home is sold for, even if the loan balance exceeds this amount. The most popular repayment strategy is to sell the property, after which the funds from the sale are used to pay off the reverse mortgage in full. And, with a few reimbursement options, you can be sure that you'll find the method that best suits your situation.
A reverse mortgage can be canceled early by refinancing it with a traditional loan or paying the difference between the amount borrowed and the amount owed for the home. Even after learning about reverse mortgages and considering the pros and cons and carefully choosing to take out the loan to achieve your goals, you may want to cancel your reverse mortgage. Ask your lender to “no longer rely on the equity line of credit” and an amortization statement that includes the month in which the mortgage will be canceled. Reverse mortgages have a 3-day period immediately after the closing of your loan, in which you can cancel the transaction without any penalty.
If you're considering a reverse mortgage or are looking for an exit, read on to learn more about creating an exit strategy when you need one. It's a good idea to contact your lender to find out how to make a one-time lump sum payment, as they will provide you with the most accurate information on how to do so. Before you apply for a reverse mortgage, make sure you understand how the loan works, the pros and cons of getting a reverse mortgage, and what your financial responsibilities will be, such as paying closing costs, paying insurance and property taxes, and repaying the loan. I have more than 30 years of experience in the mortgage industry and now focus on helping people understand reverse mortgages.
If that's the case, you might consider refinancing your current reverse mortgage to turn it into one with better terms. .