For some reason, many people are under the impression that when you have a reverse mortgage, you’re locked in for life. You are stuck with that reverse mortgage and you’re stuck living in your home whether you like it or not.
Fortunately, that’s not true! You are free to sell your home and/or pay back the reverse mortgage at any time with no prepayment penalties or limitations.
It’s simply a home loan
A reverse mortgage is simply a home loan. The most popular reverse mortgage in the United States today is the federally-insured home equity conversion mortgage, or HECM. If anybody you know recently got a reverse mortgage, chances are it was a HECM.
The HECM is a unique home loan product that gives homeowners age 62 or older access to a portion of their home’s value without taking on a mortgage payment or giving up ownership of the home.
As long as at least one borrower is living in the home and paying the required property charges, no repayment is required. In fact, the reverse mortgage balance does not have to be repaid until the last surviving borrower permanently leaves the home.
The idea is not to repay the balance in this lifetime, but you’re free to pay it back any time you like.
How a reverse mortgage is repaid
How exactly the reverse mortgage is repaid depends on the circumstances surrounding the repayment. The following are a few possible scenarios:
- At least one borrower is still living in the home and wants to repay the entire balance. This probably wouldn’t make much sense for most people, but if you’re living in the home and you want to repay the balance in full, you can. There’s no prepayment penalty or limitation on a full repayment. You can either pay off the balance with your own cash or refinance the balance with another mortgage.
- At least one borrower is alive, but no longer living permanently in the home. If this happens, the home is sold by the borrower and/or family because the borrower no longer lives in it. The reverse mortgage balance is paid back through the proceeds of the sale and any remaining equity goes to the borrower.
- All borrowers have passed away. In this case, the heirs have a few choices:
- Refinance the balance and keep the home.
- Sell the home, repay the reverse mortgage from the proceeds, keep any remaining equity.
- Let the lender sell the home and repay the reverse mortgage from the proceeds. Any remaining equity goes to the heirs.
Note that a HECM reverse mortgage is a non-recourse loan, which means the most that ever has to be paid back is the value of the home. If the home isn’t worth enough to settle the entire balance, FHA will cover the shortage out of the mutual mortgage insurance fund.
Can you pay back a reverse mortgage whenever you like?
So, can you pay back a reverse mortgage whenever you like? Definitely! Again, it’s just a type of home loan, so there’s no limitation on repayment and there are no prepayment penalties.