Can You Pay Off a Reverse Mortgage Early?

A reverse mortgage allows homeowners, typically those aged 62 and older, to convert a portion of their home equity into cash without needing to make monthly mortgage payments. Instead of the borrower paying the lender, the lender pays the homeowner, using the home as collateral. This loan becomes due and payable when certain conditions are met, but it is possible to pay off a reverse mortgage early. Homeowners can choose to satisfy the loan at any time.

When a Reverse Mortgage Becomes Due

A reverse mortgage loan becomes due and payable under several circumstances. One way the loan becomes due is if the borrower voluntarily decides to pay it off, even if no other conditions are triggered. This offers homeowners the option to proactively manage their loan obligations.

The loan also becomes due when the last surviving borrower permanently moves out of the home. This includes relocating to another residence, an assisted living facility, or a nursing home, with non-occupancy for 12 consecutive months considered a permanent move. Another common trigger is the sale of the home, where the proceeds are typically used to satisfy the outstanding loan balance.

Upon the death of the last surviving borrower, the reverse mortgage becomes due and payable. Heirs or the estate typically have a period, often 30 days initially, to address the repayment. Extensions are granted to allow time for selling the home or arranging alternative financing. During this time, heirs can choose to pay off the loan, sell the home, or allow the lender to take possession through a deed in lieu of foreclosure.

Additionally, failure to meet loan obligations can cause the reverse mortgage to become due. Borrowers are required to maintain the property, pay property taxes, and keep homeowner’s insurance current. Non-compliance with these terms, such as allowing the property to deteriorate or failing to pay required property charges, can lead to the loan becoming due.

Determining Your Payoff Amount

The total amount required to pay off a reverse mortgage includes several components accumulating over the loan’s life. These include the original principal amount borrowed, accrued interest, and Mortgage Insurance Premiums (MIP), which consist of both an upfront premium and an annual premium. Any outstanding service fees or advances made by the lender, such as for property taxes or insurance if the borrower failed to pay them, will also be included in the payoff amount.

Most reverse mortgages, particularly federally insured Home Equity Conversion Mortgages (HECMs), are non-recourse. This means neither the borrower nor their heirs will owe more than the home’s value at the time of sale, even if the loan balance exceeds it. If the loan balance is higher than the home’s market value, Federal Housing Administration (FHA) insurance covers the difference, protecting the borrower and their estate from a deficiency. Heirs wishing to keep the home can purchase it for 95% of its appraised value or the total loan balance, whichever is less.

To ascertain the amount needed for payoff, request an official payoff statement from the reverse mortgage lender. This statement provides the up-to-date balance, including any per diem interest that accrues daily. The payoff statement specifies a valid date, ensuring the amount is accurate for a planned payment. Reviewing this document helps confirm all charges and the total sum to satisfy the loan.

Steps to Pay Off Your Reverse Mortgage

Paying off a reverse mortgage involves a sequence of actions. The first step is to contact the reverse mortgage servicer directly to inform them of the intent to pay off the loan. This initial communication is important for initiating the formal process.

Following this, request an official payoff statement from the lender. This statement will detail the amount owed, including all principal, accrued interest, mortgage insurance premiums, and any fees, valid for a specific date. Request this statement well in advance of the planned payoff date to ensure accuracy and allow time for review.

Once the payoff statement is received, review all listed charges for accuracy. After verifying the figures, arrange for the necessary funds to cover the payoff amount. This could involve using personal savings, proceeds from the sale of the home, obtaining a new traditional mortgage, or utilizing funds from an estate.

Submit the payment to the lender. Payoff funds are required via wire transfer or certified check to ensure the payment is processed securely and promptly. Confirm the method and recipient details with the lender to avoid any delays or complications.

Upon successful payment, ensure the lender processes the payoff and issues a lien release, also known as a satisfaction of mortgage. This document confirms the loan has been satisfied and the lien on the property has been removed. Verify that the lien release has been recorded with the appropriate public records office to ensure the home’s title is clear.