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A reverse mortgage is a way for a homeowner 62 or older to use her house to raise extra money. The owner takes out a cash loan secured by the value of her house and doesn’t have to pay the loan.
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A reverse mortgage has to be paid off when the borrowers move out or die. These are the options for paying off a reverse mortgage before or after the borrower’s death. Sell the house and pay off the mortgage balance. Usually, borrowers or their heirs pay off the loan by selling the house securing the reverse mortgage.
Final Thoughts on Paying Off a Reverse Mortgage. Reverse mortgages can seem complicated, and they end up touching on subjects that many of us may prefer to avoid, such as our mortality or that of our parents. However, if you’re willing to put in the research you can understand how this loan works, and the maturity & payoff process is no.
For a reverse mortgage to be a viable financial option, existing mortgage balances usually must be low enough to be paid off with the reverse mortgage proceeds. However, borrowers do have the option of paying down their existing mortgage balance to qualify for a HECM reverse mortgage.
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One plus to a reverse mortgage is that you won’t owe more than 95% of the home’s appraised value, even if the loan balance is more than that. HECM’s are “non-recourse” loans. Therefore, if you sell the home to repay the loan, you will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home will be used to repay the debt.
Reverse mortgages are options for seniors as a way to financially help during. The homeowner or heirs are required to pay off the reverse mortgage, typically.
The borrower or heirs have several ways they can pay off a reverse mortgage. They can pay the balance with their own funds, they can take out a new mortgage to pay it off, or they can sell the property. Sometimes, when parents pass away, the heirs want to keep the property in the family or they may want to retain it as rental property.