You don’t make monthly mortgage payments on a reverse mortgage. You probably wonder how you ever pay the principal back with this type of loan. The good news is that you don’t have to worry about it right now. Eventually you or those that inherit your home will pay the principal back, but for now, you can enjoy your home’s equity, allowing you to age in place.
There are a few situations that would make it necessary to pay your reverse mortgage’s principal.
You Move Out of the Home
One stipulation of the reverse mortgage is that you live in the home as your primary residence. You must live in the home full-time. If you no longer live there because you’ve moved to a warmer state or you moved into a nursing home, your reverse mortgage becomes due and payable.
You Pass Away
If you pass away while you have a reverse mortgage, the people that inherit your home will need to pay the loan off in full. Typically those that inherit the home will it and use the proceeds to pay the loan off in full. If the people that inherit the home decide to keep it, they will have the refinance the reverse mortgage by getting a loan in their own name and paying the reverse mortgage off in full.
If you own the home with a spouse and only one of you pass away, the reverse mortgage can stay in place. Once the last surviving spouse is gone, the loan becomes due and payable shortly afterward.
You Default on the Loan Terms
As a part of the agreement of the reverse mortgage, you agreed to pay the home’s real estate taxes and homeowner’s insurance on time. If you fail to keep up with these obligations, your loan may become due and payable.
If you also don’t keep up with the home’s maintenance, you could violate the loan’s terms. The lender then has the right to make the loan due and payable due to lack of maintenance. This requirement is to protect the lender. If the lender needed to take possession of the home because you failed to follow the mortgage guidelines and the home is in disrepair, the lender would face a serious loss.
Paying Back the Reverse Mortgage
The most common way that borrowers pay back the reverse mortgage is by selling the home. What happens if the home sells for less than the amount of the reverse mortgage, though? Luckily, there is a provision that only allows lenders to require the amount of the sale price if this is the case. This reduces the risk of the borrower needing to come up with a large sum of money because the home decreased in value.
If the homeowners passed away and the beneficiaries are trying to sell the home, typically they have six months to do so. If the beneficiaries can’t sell the home because the market is slow or because it took a while to get the home on the market, it’s important to be in contact with the lender. Typically, lenders will start the foreclosure process six months after the last homeowner dies, but with proper contact, an agreement could be reached.
Paying back the principal on a reverse mortgage isn’t something you have to worry about right away, but it is something you should consider when you take out a reverse mortgage. Think of the consequences if you move out of the home or don’t occupy it for a full 12 months. If you aren’t ready to sell the home, you’ll need to follow the mortgage program’s rules.Click to See the Latest Mortgage Rates»