The lender cannot foreclose on an HECM and the borrower cannot lose the home. The borrower cannot outlive a reverse mortgage.
If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.
Typically, you'd need to seek another form of financing that can pay off the reverse mortgage balance. This could be a cash-out refinance, home equity loan or home equity line of credit (HELOC), or even a personal loan.
The total appraised value of your home: If your home is worth $250,000, then the maximum amount that you can claim on your reverse mortgage is $250,000. The MCA as decided upon by the FHA: In 2022, the maximum amount that the FHA will insure is $970,800.
The 60% Utilization Rule
Home equity conversion mortgage HECM borrowers may only take the greater of 60% of their total available equity or the total amount of their mandatory obligations plus 10% in the first payout.
A reverse mortgage usually must be repaid when the borrower moves out for 12 consecutive months or more, such as into a nursing home or other care facility. If the borrower is married, their spouse can remain in the home under certain conditions.
If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.
It's a loan with some unique attributes, but the lender does not own the home. You, as the owner, retain the title on the property and the loan does not need to be repaid as long as you live up to the terms of the loan, which typically include: Paying property taxes.
Technically speaking a Reverse Mortgage is guaranteed by HUD/FHA until age 150 of the youngest Borrower. But because that number is still so far above current life expectancy the real answer is that a Reverse Mortgage will last as long as you need it to.
Selling a house with a reverse mortgage isn't as simple as selling a home with a traditional mortgage — but it can be done with a little planning. With a reverse mortgage, you borrow against the equity in your property to receive cash upfront or a stream of monthly payments.
A reverse mortgage may be a good idea if:
You and your spouse/partner are both 62 or older. You are in a strong financial position. You are able to physically maintain your home.
Unlike traditional mortgages, there's no set term length for reverse mortgages. Like any loan, they have to be repaid eventually.
All variable interest rate reverse mortgages have a lifetime cap, which is the maximum interest rate the loan can reach over its term. This cap protects against excessively high interest rates. As this interest rate changes, homeowners who want to access their equity gradually may decide on this option.
You're still responsible for paying property taxes and insurance, and if you default on your property taxes, you could lose your home to tax foreclosure. A reverse mortgage lender can foreclose on the home if you're not living in it for more than 12 consecutive months due to health care issues.
If you wish to keep the home, but the amount owed on the reverse mortgage is more significant than the current value, you have the right to pay off the loan at an amount of the existing loan balance or 95% of the current market value, whichever is less.
The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.
A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse. Once your heirs receive a due and payable notice from the lender, they have 30 days to buy, sell, or turn the home over to the lender to satisfy the debt.
It is worth mentioning that all HECMs are subject to the 60% utilization rule. This limits the amount any reverse mortgage borrower can take in the first year to the higher of 60% of the principal limit or mandatory obligations like an existing mortgage plus 10% of the loan amount.
Heirs can inherit a home with a reverse mortgage but will be responsible for settling the debt, either by paying it off, selling the home, or turning it over to the bank.
If the value of your home rises, you could increase the amount that you receive from your reverse mortgage. Refinancing for a new reverse mortgage entails costs. You may want to refinance a reverse mortgage to tap more equity, get a better interest rate or add a spouse to the loan.
You remain eligible, whether or not you have a reverse mortgage. Social Security isn't typically affected by a reverse mortgage loan because it is a government-based program, primarily based on contributions you and/or your spouse made during your years in the workforce.