One of the popular types of home financial products are reverse mortgages. There are many reverse mortgage benefits and, for many people, the benefits far outweigh the downside of reverse mortgage. If you or a relative has gotten a reverse mortgage, it would be best to know everything about this type of mortgage and how it works. The proceeds and payments of reverse mortgages can have an affect on both the homeowner and his or her heirs. To get the most value from reverse mortgages, know what happens when reverse mortgages end. This article will cover some useful information on reverse mortgages and how to deal with them at the end of the agreement terms.
What are reverse mortgages and when do they end?
Reverse mortgages are a type of loan that “reverses” the payment stream of normal mortgages. Homeowners are paid by reverse mortgage lenders in return for a portion of the home equity. The homeowner always retains ownership over the property throughout the entire period of the reverse mortgage. The payments for reverse mortgages and their interest are deferred until the end of the term.
There are three occasions that signal the end of the reverse mortgage term:
- The homeowner moves from the home.
- The homeowner sells the home.
- The homeowner passes away.
What happens when the homeowner moves or sells the home?
If the homeowner leaves the reverse mortgaged property for one year, he or she will be obliged to make the payments for the loan. The homeowner’s absence from the property signifies that he or she has “moved” to another residence. One of the common reasons for moving is when the homeowner is hospitalized. The homeowner or heir of the homeowner’s estate will repay the amount received plus any other charges, including interest. If the value of the home exceeds the payment expenses to the lender, then the homeowner will retain ownership of the home. Homeowners who decide to sell the home are obliged to use the proceeds to pay off the reverse mortgage. Any portion of the proceeds exceeding the reverse mortgage cost is retained by the seller.
What happens when the homeowner passes away?
Should the homeowner of a reverse mortgaged property die, heirs of his or her estate have to repay the loan. The heirs may decide to sell the home to repay the reverse mortgage or hold on to the property and pay for the loan another way. Heirs can pay for the loan out of their own money or opt for mortgage refinance to pay for the reverse mortgage fees.