Can You Buy Back a Reverse Mortgage?

A reverse mortgage allows homeowners aged 62 and older to convert a portion of their home equity into cash without selling their home. Unlike a traditional mortgage where you make monthly payments, with a reverse mortgage, the lender pays the homeowner, and repayment is deferred. The loan balance grows over time as interest and fees are added. It is possible to “buy back” a reverse mortgage, which means repaying the outstanding loan balance to clear the lien on the property. This process involves satisfying the debt and regaining full ownership.

What Triggers Repayment

A reverse mortgage loan becomes due and payable when certain conditions are met, as outlined in the loan agreement. The most common trigger for repayment is when the last surviving borrower, or eligible non-borrowing spouse, dies. The loan also becomes due if the home is sold.

Repayment is also triggered if the home is no longer the principal residence for a continuous period, such as when the borrower moves into a nursing home or other healthcare facility for more than 12 consecutive months. Another scenario leading to the loan becoming due involves the borrower failing to meet the ongoing loan terms. This includes not paying property taxes, homeowner’s insurance premiums, or neglecting to maintain the property in good condition.

Determining the Repayment Amount

The total amount owed when repaying a reverse mortgage includes several components. This includes the principal advances, the total sum of money the borrower received through the reverse mortgage. Accrued interest is added to this principal.

Mortgage Insurance Premiums (MIP) also contribute to the repayment amount, especially for FHA-insured Home Equity Conversion Mortgages (HECMs). This includes both an upfront MIP and ongoing annual MIP charges. Additionally, servicing fees charged by the loan servicer and any other legitimate charges outlined in the loan agreement are included.

For most reverse mortgages, the amount owed can never exceed the home’s value at repayment. To obtain the exact payoff amount, contact the loan servicer directly and request a payoff statement.

Options for Repaying the Loan

Securing the funds to repay a reverse mortgage can be achieved through several financial strategies. One straightforward option involves using personal savings or other liquid assets.

Another approach is to refinance the reverse mortgage into a traditional mortgage, provided the borrower or heirs qualify for a new loan. This requires meeting credit score, income, and debt-to-income ratio requirements, and it means resuming monthly mortgage payments.

The most common method of repayment involves selling the home, using the proceeds to satisfy the debt. If the loan balance exceeds the home’s value, for HECMs, the sale must be for at least 95% of the appraised value. When heirs inherit a home with a reverse mortgage, they typically have a limited timeframe, often six months with possible extensions, to decide whether to repay the loan using one of these methods and keep the home, or sell it to satisfy the outstanding debt.

The Repayment Process

The repayment process begins once the decision to repay has been made and the necessary funds secured. The initial step is to contact the loan servicer to request an updated payoff statement.

After receiving the payoff statement, review it to confirm the exact amount and payment instructions. Funds can then be transferred to the servicer, typically via a wire transfer or certified check, as per their provided instructions.

Ensure the payment is received by the servicer on or before the specified payoff date to avoid additional interest accrual. Following the payment, confirm its receipt and request a lien release from the servicer. This document removes the lien from property records.