A reverse mortgage isn’t your typical loan. It is a way for homeowners, usually 62 or older, to turn home equity into cash without selling the house or making monthly payments. You keep the title and stay in your home. Sounds simple, right? But what happens when it is time to pay it back?
Unlike a regular mortgage, repayment isn’t due every month. Instead, the entire loan balance becomes due when a major event happens, like selling the house or the borrower's passing away. That is when the clock starts ticking, and decisions need to be made.
How Reverse Mortgage Repayment Is Triggered
The loan becomes “due and payable” when something big happens, called a maturity event. The most common one? The borrower dies. When that happens, the estate or heirs are on the hook to deal with the loan. The lender sends a notice, and the family needs to respond fast.
Another trigger is if the borrower moves out permanently. Say they go into a care facility for over 12 months, or they decide to live with family. That change makes the loan due. Also, if the homeowner stops paying property taxes, homeowners' insurance, or lets the place fall into disrepair, the lender can call the loan due.
Pixabay / Pexels / Once the loan becomes due, the house is sold. The money from the sale pays off the loan, including all interest and fees that piled up over time. Whatever is left after that goes to the heirs or estate.
However, if the house sells for less than the loan balance, don’t panic. Thanks to FHA insurance, lenders accept 95% of the home’s appraised value as full payment. That protects the heirs from owing more than the home is worth.
Refinance or New Mortgage
If the heirs want to keep the house, they can. But they will need to come up with the money. The most common way is by refinancing with a new traditional mortgage. That pays off the reverse mortgage and puts the home in their name.
As the original borrower, you can also decide to switch back to a traditional loan. Perhaps you want to prevent interest from accumulating or plan to leave more equity behind. You can refinance into a regular mortgage and start making monthly payments again.
Paying in Cash
Some heirs might just want to pay the balance off with savings or other assets. That is also an option. The key here is to ask the lender for a formal payoff amount. Once you have that number, you can send a payment and settle the loan without needing to sell or refinance.
Mart / Pexels / If the family doesn’t want the house and can’t pay back the loan, there is one last option. It is called a ‘deed in lieu of foreclosure.’
This route keeps things clean and quick. If you or your heirs have the cash, it avoids the paperwork and stress of loans or home sales. It also helps if the family wants to keep the house in the family without strings attached.
That is when the borrower or heirs sign over the home to the lender instead of going through a messy foreclosure.
It is not ideal, but it avoids the stress of court. Plus, it also saves time and can protect credit scores. Once the lender takes the house, the loan is considered settled, and no one owes anything else.
When the borrower passes away, heirs aren’t expected to act overnight. The lender sends a letter giving them six months to repay the loan or sell the house. That gives families time to grieve, talk, and make a plan.
