Can You Pay Off a Reverse Mortgage Early?

A reverse mortgage allows eligible homeowners, typically aged 62 or older, to convert a portion of their home equity into cash without needing to make monthly mortgage payments. Unlike a traditional mortgage where you make payments to the lender, the lender generally pays you, either as a lump sum, regular payments, or a line of credit. It is possible to pay off a reverse mortgage early, though it is not typically required until certain events occur.

Understanding the Reverse Mortgage Balance

The balance of a reverse mortgage increases over time, which differs significantly from a traditional mortgage where payments reduce the principal. This growth occurs as principal advances, accrued interest, mortgage insurance premiums (MIP), and service fees are added to the loan balance. Interest accrues on the outstanding balance, including any previously accrued interest and fees, leading to a compounding effect. This means the amount owed can grow considerably over the years, decreasing the available home equity.

Mortgage insurance premiums consist of an initial upfront premium and an annual premium. These premiums, along with any service fees, are added to the loan balance and contribute to its increase, though borrowers are not required to pay them until the loan becomes due.

Scenarios for Early Repayment

A reverse mortgage becomes due and payable when certain events, known as “maturity events,” occur. One common scenario is the homeowner selling the home; proceeds are used to satisfy the reverse mortgage balance. Another trigger is the homeowner permanently moving out, for instance, to a long-term care facility or another residence. If a borrower does not reside in the home for 12 consecutive months, the loan may become due.

The death of the last surviving borrower is also a primary event that makes the reverse mortgage due and payable. In such cases, the borrower’s heirs typically have options to repay the loan, keep the home, or sell the property. A reverse mortgage can also become due if the homeowner fails to meet loan obligations, such as paying property taxes and homeowners insurance, or maintaining the property in good condition. Homeowners also have the option to voluntarily pay off the loan early.

Repaying the Loan

When a reverse mortgage becomes due, or a homeowner chooses to repay it early, the first step involves contacting the loan servicer. The servicer will provide a payoff statement detailing the total outstanding balance, including the principal, accrued interest, and fees, valid for a specific date. This statement is essential to ensure the correct amount is remitted to fully satisfy the loan.

Payment methods for a reverse mortgage payoff often include wire transfers or certified checks. The loan is typically repaid in a single payment, often from the proceeds of the home’s sale or other financial assets. After the loan is repaid, the servicer will release the lien on the property, and the homeowner or their heirs will receive confirmation that the loan has been fully satisfied.