Repayment of a Loan
In general, while you are living in the home you do not have to make any payments on the reverse mortgage loan. The loan is not due until everyone on the title of the house has not lived in the house for six consecutive months (or twelve months if gone for medical reasons) or died. It is standard for the lenders to give the borrowers or heirs six months to repay the loan or sell the house before starting foreclosure proceedings. However, in some special circumstances your loan may become due while you are still in the house. These circumstances can include:
- Failure to pay property taxes or insurance. (You are still responsible for paying these items even if you have a reverse mortgage, although you can certainly pay for them with the proceeds from the reverse mortgage.)
- Failure to maintain and repair home.
- Donation, condemnation or abandonment of home.
- Declaration of bankruptcy.
- Perpetration of fraud or misrepresentation.
- Renting out part or the entire home.
- Adding a new owner to the home’s title.
- Changing the home’s zoning classification.
- Taking out new debt against the home.
Be sure to read your loan documents or ask your lender what the circumstances are that will cause your loan balance to be due in full.
Reverse mortgages are non-recourse loans. What that means is that the lender legally cannot collect from you or your heirs more than the value of the house at the time the loan is due and payable. If you move out of the house and sell it for $300,000 and the loan balance is $320,000, the lender has to take a $20,000 loss. However, this only holds true if the home is sold at fair market value or given back to the lender. If you die and your heirs want to keep the home they must repay the full loan balance.