Repayment
When do you need to pay back a reverse mortgage?
Repayment is triggered when the last surviving borrower or eligible non-borrowing spouse dies, sells the home, or stops living in it as a primary residence.
- Dies
- Sells the home
- No longer lives in the home as their primary residence — for example on moving to an assisted living facility, moving in with family, or downsizing
At that point there are three ways to settle the loan.
Option 1. Sell the home
The borrower or their heirs can simply sell. Proceeds go first to paying off the lender, and the borrower or the estate keeps whatever is left.
Selling is still an option even if the home is worth less than the loan balance. The FHA, which backs HECM loans, considers the loan terms satisfied if the home is sold for 95 percent of its appraised value.
Option 2. Refinance the mortgage
If you are the borrower and you want to move out but keep the home, you can refinance the reverse mortgage into a traditional mortgage. You will need to start making payments on the new loan to keep it.
Option 3. Take out a new mortgage
If your heirs want to keep the home, they can take out a new mortgage to pay off the reverse mortgage balance — much like refinancing. From there they can live in the home or use it as an investment property, so long as their own mortgage allows it.
The protection that matters most
A reverse mortgage is a non-recourse loan. Neither you nor your estate can ever owe more than the value of the home when the loan comes due and the home is sold. If the balance exceeds the value, FHA insurance covers the shortfall — that is what the mortgage insurance premium pays for.