If Your Spouse Or Person Living With You Isnt A Co
If your spouse or partner is not a co-borrower and you move someplace else for the majority of the year, the reverse mortgage loan will need to be paid back. The most common way to pay back a reverse mortgage is by selling the home, in which case your spouse or partner will have to move. If you are away from your home and in a healthcare facility such as a hospital, assisted living, nursing home, or rehabilitation center for more than 12 consecutive months, your non-borrowing spouse may be able to stay in the home without paying off the loan, depending on when you took out the loan. and whether they qualify as an Eligible Non-Borrowing Spouse under HUDs rules. Qualifying as an Eligible Non-Borrowing Spouse can be difficult, so your spouse may want to consider contacting an attorney or HUD-approved housing counseling agency.
Learn more about whether your spouse can qualify as an Eligible Non-Borrowing Spouse.
Note: This information only applies to Home Equity Conversion Mortgages , which are the most common type of reverse mortgage loan.
How Do Reverse Mortgages Work In Canada
A reverse mortgage is a secure solution for Canadian homeowners age 55+ to access their home equity and turn it into tax-free cash, without having to pay any regular monthly mortgage payments. This allows you to access tax-free cash without having to move, sell or downsize.
With a CHIP Reverse Mortgage from HomeEquity Bank you always retain the ownership of your home and maintain title. You will never be forced to move or sell your home, even if your income or home value changes.
We guarantee the amount that you or your estate eventually has to repay will never exceed the fair market value of your home at the time it is sold. Your home should never be a burden to you or your family. If your home goes up in value, the appreciation is all yours. You just need to maintain your property and pay the taxes and insurance.
Why You Should Be Careful With Reverse Mortgages
Reverse mortgages are a tricky area of finance because theyre a frequent subject of scams and predatory lending.
There is nothing inherently illegitimate about a reverse mortgage. While not necessarily common, these are mainstream financial products that can be useful for the right person. However, they are also relatively complicated loans and in most cases are restricted by law to people over the age of 62. This has made them extremely popular for bad actors targeting the elderly.
The upshot is this: Be careful when researching, shopping for or taking out a reverse mortgage. As with with other financial moves, you should consult a qualified financial expert before taking out a reverse mortgage, as it can save you an enormous amount of trouble in the long run.
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Do This To Avoid Foreclosure From A Reverse Mortgage
Another danger associated with a reverse mortgage is the possibility of foreclosure. Even though the borrower isnt responsible for making any mortgage paymentsand therefore cant become delinquent on thema reverse mortgage requires the borrower to meet certain conditions. Failing to meet these conditions allows the lender to foreclose.
As a reverse mortgage borrower, you are required to live in the home and maintain it. If the home falls into disrepair, it wont be worth fair market value when its time to sell, and the lender wont be able to recoup the full amount that it has extended to the borrower.
Reverse mortgage borrowers are also required to stay current on property taxes and homeowners insurance. Again, the lender imposes these requirements to protect its interest in the home. If you dont pay your property taxes, then your local tax authority can seize the house. If you dont have homeowners insurance and theres a house fire, the lenders collateral is damaged.
About one in five reverse mortgage foreclosures from 2009 through 2017 was caused by the borrowers failure to pay property taxes or insurance, according to an analysis by Reverse Mortgage Insight.
|Reverse Mortgage Interest Rates for HECMs|
There are some exceptions to these rules for eligible non-borrowing spouses who want to keep living in the home after their borrowing spouse passes away.
You Don’t Plan To Move Soon
You should plan on remaining in your home for the near future if you’re considering a reverse mortgage. This rule of thumb isn’t unique to reverse mortgages it also usually doesn’t make sense to get a new forward mortgage on a home you’re about to sell. The reason? Loan closing costs.
|Typical Reverse Mortgage Closing Costs|
|Required if the home doesn’t meet the FHA’s minimum property standards|
It may not make financial sense to pay these sums if you’re going to move before the loan’s financial benefits outweigh the costs. Moving is one of the events that make your reverse mortgage due and payable. After paying seller fees and repaying your HECM, the proceeds from selling your house may not be enough to support your next step, whether it’s downsizing, assisted living, or paying a relative for caregiving.
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When A Reverse Mortgage Doesn’t Make Sense
We’ve already touched on some scenarios when a reverse mortgage may be the wrong choice: you’re not sure how long you’ll keep living in the home, your spouse can’t be a co-borrower, you’d struggle to maintain the home, or the home has sentimental value to your loved ones. Let’s further discuss some scenarios where a reverse mortgage might not suit your circumstances.
Am I Able To Get A Reverse Mortgage With A Low Credit Score
Yes, The CHIP Reverse Mortgage is designed specifically to assist Canadian homeowners 55+ and improve their financial situation. While your credit score is a consideration, we take a holistic view of your financial history. The loan amount youre approved for is also based on factors like your age, the appraised value of your home, its location, and your personal debts.
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Can You Get Out Of A Reverse Mortgage
If you want to get out of a reverse mortgage, there are a few ways you may do so. When it comes to deciding which option is best for you, consider your goals and your financial situation. Some options may come with costs and others may require a lifestyle change like moving out of the home. When considering your options, it may be best to speak to a financial advisor or a reverse mortgage counselor who is approved by the Department of Housing and Urban Development .
How Does Reverse Mortgage Work
As a mortgage progresses, home equity increases as the loan balance decreases. As homeowners take out reverse mortgages or the equity of their homes decreases, they owe more and more to the lender.
The homeowner gets to choose which payments they prefer and only pays interest on the money used. If the homeowner moves or passes away, any money gained from selling the home pays back to the lender who provides a reverse mortgage.
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How Long Do You Have To Get Out Of A Reverse Mortgage
If youve taken out a reverse mortgage, you dont need to pay it back as long as you continue to live in the home as your main residence, you make timely property taxes and home insurance payments, and you keep the property in good repair.
But when you inherit a home with a reverse mortgage, there are a few deadlines you need to follow. Youll usually have three options: sell the property, buy it, or allow the lender to foreclose. While repayment of the loan is due within 30 days of the time the estate receives a demand letter, you may be able to have up to six months to get out of the reverse mortgage by selling the home or obtaining financing.
If youre trying to sell a home with a reverse mortgage, you may be able to get two additional 90-day extensions, subject to approval from the U.S. Department of Housing and Urban Development .
How Do You Pay Back A Reverse Mortgage After Death
The following options are available for paying off a reverse mortgage before or after the borrower passes away:
Sell the house and pay off the balance.Borrowers and heirs often sell the house for paying off the loan. The proceeds from the sale are used to repay the mortgage. The remaining proceeds belong to the borrowers or heirs after repaying the loan.
Sell the house for less than the loan balanceBorrowers can sell the home for 95% of its appraised value. They use the difference to pay back a reverse mortgage.
Even though the sale may not cover the due balance, the Federal Housing Administration doesnt allow lenders to reach borrowers or heirs for the difference. It will not hurt your credit score.
Jumbo reverse mortgage borrowers have to check with their lenders whether theyre liable to pay any difference after selling the house.
Provide A deed in lieu of foreclosure.Many times, reverse mortgage borrowers pass away, leaving behind mortgage balances higher than the homes value. Heirs can repay the mortgage by providing the lender with a deed in lieu of foreclosure. Thus, they dont have to deal with the time and cost of foreclosure. This option wont hurt the heirs credit score.
This option is also available to borrowers who want to move. But in this case, a deed in lieu of foreclosure hurts your credit score.
- Pay the monthly interest, in part or whole, or pay both principal and interest.
- Fully repay the loan at any time.
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Can You Walk Away From A Reverse Mortgage
The answer depends on what you mean by walk away:
- If you have a reverse mortgage on your home and you move away permanently or abandon the home, the loan will likely become due.
- If the reverse mortgage in question comes due and you ignore the repayment, the lender will likely foreclose on the home and sell it to get their money back.
So, you can walk away from a reverse mortgage, but there are significant downsides. Evaluate your situation and consider your other options before walking away.
If I Have A Reverse Mortgage Loan Will My Children Or Heirs Be Able To Keep My Home After I Die
It depends. If you have a Home Equity Conversion Mortgage your heirs will have to repay either the full loan balance or 95% of the homes appraised valuewhichever is less.
Upon the death of the borrower and Eligible Non-Borrowing Spouse, the loan becomes due and payable. Your heirs have 30 days from receiving the due and payable notice from the lender to buy the home, sell the home, or turn the home over to the lender to satisfy the debt. However, it may be possible for the timeline to be extended up to a year so that your heirs can sell the home or obtain financing to purchase the home. Your heirs can consult a HUD-approved housing counseling agency or an attorney for more information.
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Cons Of A Reverse Mortgage
These loans arent for everyone. They come with several drawbacks that you might want to consider before you get one:
- Reverse mortgages decrease the amount of equity you have in your home.
- Your loan balance will increase if you dont pay down your interest over time.
- You may outlive your loans benefits if you dont choose to receive monthly payments throughout the life of the loan.
- A reverse mortgage can make it more difficult for your heirs to benefit from the equity in your home after you pass away.
You should also be aware that, as with many loans, there are many reverse mortgage scams. Make sure you verify your loan and beware of contractors who suggest loans to pay for home repairs or programs that target veterans. The Department of Veteran Affairs does not sponsor any reverse mortgage loans.
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How To Lower Your Monthly Mortgage Payment
If the monthly payment you’re seeing in our calculator looks a bit out of reach, you can try some tactics to reduce the hit. Play with a few of these variables:
- Choose a longer loan. With a longer term, your payment will be lower .
- Spend less on the home. Borrowing less translates to a smaller monthly mortgage payment.
- Avoid PMI. A down payment of 20 percent or more gets you off the hook for private mortgage insurance .
- Shop for a lower interest rate. Be aware, though, that some super-low rates require you to pay points, an upfront cost.
- Make a bigger down payment. This is another way to reduce the size of the loan.
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Paying Off The Loan Isnt Always The Best Option
Charlene Rhinehart is an expert in accounting, banking, investing, real estate, and personal finance. She is a CPA, CFE, Chair of the Illinois CPA Society Individual Tax Committee, and was recognized as one of Practice Ignition’s Top 50 women in accounting. She is the founder of Wealth Women Daily and an author.
Many seniors in need of cash turn to a reverse mortgage. A reverse mortgage allows homeowners age 62 and older to use their home equity to receive payments. The loan isnt due until the borrower dies, sells their home, or the home is no longer their primary residence. Because interest and fees accrue, the loan balance will increase each month.
A reverse mortgage can be a valuable resource for seniors struggling with expenses. But there are a number of reasons you may want to get out of one. Learn your options for getting out of a reverse mortgage.
How Do You Pay Back A Reverse Mortgage
A reverse mortgage is commonly paid back by using the proceeds from the sale of the home. If the loan comes due because youve passed away, your heirs will be responsible for handling the repayment and will have a few options for repaying the loan:
- Sell the home and use the proceeds to repay the loan.
- Refinance into a traditional mortgage or use their finances to purchase the home for the amount due on the loan or 95% of the appraised value of the home whichever is less.
- Sign the title over to the lender and walk away from the loan.
How A Chip Reverse Mortgage Works To Turn Your Homes Equity Into Tax
Theres no retirement like staying in the home you love. If youre like most Canadian homeowners age 55+, much of what you own fits into one of two categories the equity in your home and the money you have saved. Chances are that the value of your home has grown over the years and makes up a good portion of your net worth. While having a home that has appreciated in value is a positive, you typically cant spend that value unless you sell your home. A Reverse Mortgage allows you to turn up to 55% of the appraised value of your home equity into tax-free cash. It also ensures you have access to the funds whenever you want it. Youll maintain full ownership and control of your home without the obligation to make regular mortgage payments until you move or sell.
How Much Equity Do I Get Out Of A Reverse Mortgage Loan
Your lender will determine how much equity you can get based on a number of factors, including your age, the appraised home value, and current interest rates. These factors determine your initial principal limit, which is the total amount you can borrow. You can usually borrow up to 60% of your initial principal limit in the first year.
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What Happens If You Dont Pay Back A Reverse Mortgage
In general, if you dont make payments, the lender can start foreclosure proceedings on your property.
If they do foreclose on your home, how much of a loss will I suffer?
As with any type of opens in a new windowforeclosure, not all parts of this process are known in advance and it may be hard to predict how losses might occur.
You Have Health Challenges
Retirement-age homeowners with health issues might consider a reverse mortgage to raise cash for medical bills. However, if your health declines to the point where you must relocate, the loan must be repaid in full because the home no longer qualifies as the borrower’s primary residence. If you might have to move due to health or disability, a reverse mortgage is probably unwise because, in the short run, its upfront costs are unlikely to pay off.
Homeowners who suddenly vacate or sell the property generally have just six months to repay the loan. And though borrowers may pocket any sales proceeds above the balance owed on the loan, thousands of dollars in reverse mortgage costs will have already been paid out.
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What Home Sale Proceeds Sharing Costs
It’s not a loan, so you don’t pay interest. You pay a fee for the transaction and to get your home valued . You may also have to pay other property transaction costs.
Home sale proceeds sharing costs you the difference between:
- what you get for the share of your home you sell now, and
- what it’s worth in the future
The more your home goes up in value, the more the provider will receive when you sell it.
Get the provider to go through projections with you, showing the impact over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if there’s anything you’re not sure about.