Reverse Mortgage Costs
After senior citizens are approved for their reverse mortgages, they often look forward to having the cash they need today to pay bills, bulk up their savings, or use the money for other financial obligations. As they enjoy their money, however, it may cross their minds that they perhaps do not understand how and when the loan must be paid. Rather than make monthly payments as they would on a traditional loan, people with this kind of financing generally are expected to adhere to different repayment guidelines. While these guidelines are designed to make life easier for seniors, they could still be subject to paying off the loan if they experience unique circumstances. Knowing the repayment terms and for what amounts they are responsible, if any, can help people be more proactive owners of their loans.
Repayment upon Death
In its traditional form, a reverse mortgage is designed to be paid off once the loan holder dies. If a married couple applied for and received the loan, the repayment can wait until the last person on the loan has passed. After the originally loan holder or holders are deceased, the lender will then sell the house to recoup the amount of the mortgage. The amount recovered cannot be more than the loan itself, nor can it exceed the selling price for the home. For example, if a loan holder owed $150,000 to the lender upon his or her death, but the lender can only sell the house for $100,000, the loan must still be considered as satisfied. The mortgage company cannot recover the $50,000 difference by suing the holder’s children or putting a lien against the estate.
Repayment upon Moving
While a senior citizen may have been in great health when he or she applied for the loan, that person may experience a decline that makes it necessary for him or her to move to an apartment, to a relative’s home, or to a senior living facility. Regardless of the circumstances of the move, the person must repay the loan if he or she moves out of the house. According to the terms of this type of financing, at least one of the loan’s owners must use the house as a primary residence. Once the person moves, the amount of the loan comes due. Lenders define a permanent move as a homeowner who has not permanently lived in his or her house for more than a year. If a person lives with someone else, relocates to a new residence, is transferred to a medical facility, or allows someone else to live in the house long term in his or her stead, that person must repay the amount.
Repayment upon Selling the House
People who receive a reverse mortgage are barred from taking out another loan against the home’s equity. However, they can still sell their home to another buyer if they so choose. If or when they sell their home, the amount of their reverse mortgage must be repaid. Even if they sell the house for less than the amount of that mortgage, they must still pay the difference. The terms of their mortgage stipulates that only the home’s owner can be on the mortgage. It cannot be transferred to the new buyer, nor is it forgiven if the house is sold.
Repayment by Relatives or Friends
People who want to pass their homes onto their children, friends, or relatives often cannot do so once they are approved for a reverse mortgage. If their heirs insist on taking possession of the house after the loan holder dies, however, the heirs have the option of paying off the loan early. Before they pay off the loan, they should understand that most reverse mortgage lenders are not equipped to accept monthly payments as traditional mortgage lenders would. Benefactors must send in a one lump sum to the company to satisfy the loan and to free up the house so that it can be willed to someone.
Likewise, seniors cannot add their children to the reverse mortgage, even if their children are aged 62 or older. Most lenders only allow the home’s owner or owners to receive this loan. It must be satisfied in entirety by the original loan holder per the repayment terms agreed upon or by having someone else in their family or group of friends pay off the loan early for them.
Many people who receive reverse mortgages on their homes may still have questions about how these loans must be satisfied. Before they apply for their financing, people can benefit by knowing the terms for repaying and how circumstances can affect their current and future financial wellness. They can use the money appropriately and prepare their heirs and estate for repaying their reverse mortgages by keeping these terms in mind.