Some homeowners have preconceived notions about reverse mortgage loans. For example, they fear that once they get their reverse mortgage the bank owns the home, or the bank takes their home when they pass away. Of course neither of these is true. Here’s what you need to know about what happens to your house during and at the end of a reverse mortgage.
The House Stays in Your Name Throughout the Entire Life of the Loan
When you get a reverse mortgage loan the title of your home stays in your name. It is just like a traditional mortgage in that there is simply a lien filed against the property the same as any other home loan. The major difference between a traditional loan and a reverse mortgage is that there are no monthly mortgage payments required with a reverse mortgage. However, since the home stays in your name, you are still responsible to pay all of your own property taxes as well the as the homeowners insurance and any maintenance.
You will receive monthly statements but you do not need to make any mortgage payments once the reverse mortgage is in place. If you want to, you can make a payment, but the statements are purely informational in nature. One time per year you will get a letter that you have to sign and return stating that you are still living in the home as your primary residence. That is a requirement for you to keep the loan in place.
What Happens to Your Home If You Move Our or Pass Away?
The reverse mortgage loan only becomes due and payable when the last borrower permanently leaves the home. That can be from passing away or simply moving out for any reason. If you have to move out of the home for any reason, you simply sell the house. You pay off the amount owed plus the interest and fees that have accumulated over the years. Whatever is left after paying off the reverse mortgage is your equity and you keep it.
If you pass away while living in the home, your heirs will inherit the home. They have six months, plus two 90 day extensions, for a total of a year to either sell the home and pay off the loan or refinance the reverse mortgage with a conventional loan and keep it in the family.
As long as you are living in the home and keeping up with the property taxes and insurance, the home is yours and you never have to make a mortgage payment on the reverse mortgage. However, you are still charged interest and mortgage insurance. These are added to the loan balance on a monthly basis and accumulate over time. In other words, your loan balance is increasing and your home equity (the difference between the value of the home and the amount owed), is decreasing.
There is a chance that the loan balance could exceed the value of the home. If that happens and you owe more on the loan than the home is worth, it makes no difference as long as you are living there and paying your property taxes and insurance and maintaining the home. The bank can never kick you out as long as you are doing these.
If you pass away with the loan balance exceeding the value, the home still goes to your heirs. They do NOT have to pay the loan back. Because there is mortgage insurance on all FHA insured reverse mortgage loans, they can simply sign the home over to the bank and walk away. The bank has no recourse on you, your estate or your heirs.
The intent of the reverse mortgage is to allow you to stay in your home for as long as you want to or are able to and still maintain your standard of living. A reverse mortgage may or may not be right for you, but please learn the facts to make an informed decision first.
“If I take out a reverse mortgage loan, does the bank own my home?” ConsumerFinance.Gov
“Most Frequently Asked Questions,” ReverseMortgage.Org