A reverse mortgage can be a valuable resource for seniors struggling with expenses. But there are a number of reasons you may want to get out of one. Learn your options for getting out of a reverse mortgage.
How Do You Get Out of a Reverse Mortgage?
The rules for getting out of a reverse mortgage vary by the type of loan you have. Most reverse mortgages are home equity conversion mortgages (HECMs). Under HECM rules, a reverse mortgage becomes due when:
The last surviving borrower dies.You sell your home.The home is no longer your primary residence.
If you decide you want out of a reverse mortgage, you have several options. Here are the most common ways to discontinue your reverse mortgage loan.
Exercise Your Right of Rescission
If you immediately regret taking out a reverse mortgage, you could exercise your right of rescission. Most reverse mortgages give you at least three business days to cancel the loan for any reason. If you pursue this route, you’ll need to notify your lender in writing. Your lender will have 20 days after you cancel to refund any money you paid upfront. If you received any money from the transaction, you’ll need to return it to the lender after you receive your refund.
Sell the Home
When you sell a home that has a reverse mortgage, you’ll owe the loan principal amount plus interest and fees. If you sell the home for more than you owe, you keep the profit. However, if the loan balance is more than the sale price, money from the sale will go toward reducing the balance. Your mortgage insurance will cover the difference.
Pay It Off
You can get out of a reverse mortgage at any time by paying off the loan. However, this option probably isn’t realistic for most borrowers. After all, many people take out a reverse mortgage because of a cash shortfall. If you’ve inherited a home with a reverse mortgage that has gone into default, you can get out of it by paying off the lesser of 95% of the home’s appraised value or the entire loan balance.
Refinance
You can refinance a reverse mortgage into a new reverse mortgage or a traditional mortgage loan. If you inherit a home with a reverse mortgage, you’ll need to refinance with a traditional mortgage.
Let the Lender Foreclose
If you want to get out of a reverse mortgage for a home you’ve inherited, you could surrender ownership of the property by providing the lender with a deed in lieu of foreclosure.
How Long Do You Have To Get Out of a Reverse Mortgage?
If you’ve taken out a reverse mortgage, you don’t need to pay it back as long as you continue to live in the home as your main residence, you make timely property taxes and home insurance payments, and you keep the property in good repair. But when you inherit a home with a reverse mortgage, there are a few deadlines you need to follow. You’ll usually have three options: sell the property, buy it, or allow the lender to foreclose. While repayment of the loan is due within 30 days of the time the estate receives a demand letter, you may be able to have up to six months to get out of the reverse mortgage by selling the home or obtaining financing.
Should You Pay Off a Reverse Mortgage?
You’re allowed to pay off a reverse mortgage anytime. But if you’re the borrower for a home with a reverse mortgage, think very carefully before you do so. You’re under no obligation to repay the loan while you’re still living as long as you keep up with property taxes and insurance, maintain the home, and continue to live there as your main residence. Paying off the loan could cost you money you need for retirement expenses. If you’re seeking better loan terms or need to add your spouse to your reverse mortgage loan, refinancing may be a better option than paying it off. You won’t leave your heirs with debt if you don’t repay the reverse mortgage. Even if the loan balance significantly exceeds the home’s value, they can sell the home. If the sale price is less than the loan balance, mortgage insurance will cover the difference. If you’ve inherited a home with a reverse mortgage, you’ll need to pay off the loan if you want to keep the residence. If you don’t have the money to pay it off out of pocket, you can get financing through a traditional mortgage. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
