A reverse mortgage must be repaid in full if the last surviving borrower or eligible non-borrowing spouse:
- Dies
- Sells the home.
- No longer lives in the home as their primary residence (if the borrower enters an assisted living facility, moves in with family, or downsizes.)
Option 1. Sell the home.
Once payment comes due, either the borrower or their heirs can decide to simply sell the home to pay off the loan. The proceeds of the sale go first toward paying off the lender. The borrower, or their estate, keeps whatever is left over after paying the debt.
Selling the home is still an option, even if the home’s value is lower than the loan’s balance.
The Federal Housing Administration (FHA), the agency that backs HECMs, considers the loan terms satisfied if the borrower or heirs sell the home for 95 percent of its appraised value.
Option 2. Refinance the mortgage.
If you’re the borrower and you want to move out but still keep the home, you can refinance your reverse mortgage into a traditional mortgage loan. Just remember that you’ll need to start making payments on the new loan to keep the home.
Option 3. Take out a new mortgage.
If the borrower’s heirs want to keep the home, they can simply take out a new mortgage on the house to pay off the balance of the reverse mortgage. This is much like refinancing the loan as the original borrower.
The heirs can then use the home however they wish, so long as their mortgage allows for it. For example, they choose to live in the home or use it as an investment property.