Settling a Reverse Mortgage Account
Learn what happens once the reverse mortgage loan becomes due and payable, and how the outstanding balance will be paid.
Life of the Loan
During the life of the loan, the reverse mortgage borrower does not need to make any monthly payments. Funds received through the loan can be used in any manner.
The amount loaned continues to grow in interest until it becomes due and payable, which happens once a maturity event occurs. The surviving spouse or heirs are then responsible for settling the reverse mortgage account, though they do not actually incur any debt.
A maturity event signifies that the reverse mortgage loan is now due and payable. Any of these events may cause the loan to mature:
- When the borrower passes away;
- When the borrower sells or passes the title of the property; or
- When the property is n o longer the primary residence of the borrower for a period longer than 12 months due to a physical or mental condition.
Once one of these occur, the loan becomes due and payable, and the surviving spouse, heirs or the estate will have six months to ensure that the loan balance is paid in full. They are also responsible for informing the lender or loan servicer if the homeowner whose name is on the title passes away.
Settling the Loan
There are two main ways to settle a reverse mortgage loan that is due and payable:
- Pay the loan balance from other resources.
- Sell the home and pay the loan balance with the proceeds.
If the estate chooses to sell the property, any amount left after fully paying the loan will go to the heirs. Note that the debt does not transfer to the heirs because a reverse mortgage is a non-recourse loan.
If the loan amount has not been settled after five months, the estate will receive a reminder letter from the servicer informing them that they have 30 days to settle the account. Two 90-day extensions can be requested from HUD. However, the servicer may initiate foreclosure if there’s no response to the 30-day reminder letter or if the 90-day extensions all expire.
It’s recommended to work closely with the lender in settling the account immediately once the loan becomes due and payable.
Next topic: Discussing Reverse Mortgage with Senior Parents