What Happens When a Reverse Mortgage Comes Due?

reverse mortgage myths

A reverse mortgage is a financial product that has been known to add a lot of value to the recipients who engage in one. These can add income to seniors who have little financial assets available to support themselves. Working with a reputable company, like Shop Reverse Mortgage, ensures that you are not taken advantage of and have the most favorable terms when money is allocated to your account.

As a brief refresher, a reverse mortgage is similar to another financial product that millions of Americans — a traditional mortgage. A traditional mortgage requires foresight and planning.

Their characterized by periodic payments, over a certain amount of years, to payback the bank who purchased the property. These payments have interest. After a certain amount of years, for instance 30, the person(s) will own the home outright.

Due to their ownership of the home, payments still need to be paid on taxes and, while not required, renovations. A reverse mortgage is similar in that payments must still be paid on the home, such as property taxes or homeowner’s insurance.

How a reverse mortgage differs is that instead of you paying the lender on a payment schedule, the lender pays you. For seniors 62 years or older, this is advantageous because money often has a way of running dry.

An example of one of our prior clients who engaged in a reverse mortgage is of Dr. Abigail Madison, who lived in Seattle, Oregon. Madison had a string of bad luck. Her husband recently passed away from lung cancer. This was devastating for Madison who had been married for over 20 years. They had three children together.

reverse mortgage mythsMadison saved all of her life and had a good retirement savings. However, she became depressed when her husband died and on one afternoon, she tripped and fell down a flight of stairs, which broke his hip. At an advanced age, Madison required 24-hour care and the usage of a wheelchair.

Madison could only afford live-in care for two years, which for her three children was very worrisome — they were strongly opposed to her living in a nursing home. However, her children had lives of their own and kids to take care of making them financially strapped, unable to pay the thousands of dollars necessary.

Fortunately, Madison’s home had a value of about $200,000. With the help of her daughter, Madison took out a reverse mortgage, which was the last remaining asset Madison. Madison had the option of having money via the following:

  • Line of credit: periodic installments or payments chosen at the homeowner’s discretion until the line of credit ends; interest is charged on money withdrawn
  • Credit line growth: periodic installments or payments that increase overtime
  • Monthly tenure: scheduled monthly payments during the occupancy in the home
  • Monthly term: monthly payments for a fixed amount of years, dependent upon how many chosen
  • Fixed-rate or lump-sum: payments are provided upfront, but is usually less than if a prior option is chosen

She chose the monthly tenure option, which provides a monthly payment for as long as Madison lives in her home. For Madison, this was perfect because she now had income to pay for the medical she needed.

But What Happens When a Reverse Mortgage Comes Due?

It is dependent on the situation. A majority of reverse mortgages are insured by the Federal Housing Administration, which is part of their Home Equity Conversion Mortgage (HECM) program. The HECM must be paid once the last surviving borrower moves out, dies or sells the home. Likewise, if property payments are not paid, such as homeowner’s insurance, taxes, or general upkeep, the loan can also become due then.

The following is according to the Consumer Financial Protection Bureau as to when the loan comes due:

If you are the only borrower on the HECM reverse mortgage loan and:

  • You live alone,your loan will have to be paid off when you die, sell the home, or move out.
  • You live with a spouse or partner,your loan will have to be paid off when you die, sell the home, or move out.
    Warning: If you or your spouse/partner cannot afford to repay the loan from other funds, your spouse or partner will most likely have to move.
  • You live with children, other relatives, or unrelated roommates,your loan will have to be paid off when you die, sell the home, or move out.
    Warning: If you or your heirs cannot afford to repay the loan from other funds, your children, relatives, and/or roommates will most likely have to move.

When taking out a reverse mortgage it is important to be realistic. The money heirs may expect will be less than they initially planned for if a reverse mortgage is taken out because the parent, in this case Madison, needs the money for her own personal medical needs. With a carefully conversation with her children, they decided that this method was best. While difficult to have, it is necessary for a family to be open about the necessities that elderly family members need.

Secure a Reverse Mortgage

cnbc reverse mortgagesIf you are a senior aged 62 years or older, and are interested in having a capital infusion, contact our company today. You can find out if you qualify by dialing (888) 547-8308. Our specialists are standing by and are available Monday to Friday, from 9 a.m. to 8 p.m. EST; and on weekends, from 12 p.m. to 3 p.m. on Saturday and Sunday.

When speaking with one of our specialists, it is important to be upfront and clear about how you planned to use the money, your lifestyle, and other important information that provides a clear picture of you as a person. Our company does not judge and only seeks to enable seniors to live as well as possible. Click here to learn more from our Learning Center where one can become empowered with knowledge. Our company is a leader in reverse mortgages in Florida and would love to help you today!