What Happens at the end of a Reverse Mortgage?
Question: You explained that a Reverse Mortgage is a loan on the equity of my home, and it becomes due when I move from my home or pass away. How does that work in the end, what happens at the end of a Reverse Mortgage? What if there is not enough money from the sale of my home to pay back what is owed on the Reverse Mortgage? Will my heirs have to pay the remaining balance due?
Answer: This is an excellent question. Generally, after you move from your home, or pass away, the bank will send a notice that the loan is due.
At that time there are choices to be made. One option is to put the house up for sell and pay the balance of the Reverse Mortgage with the proceeds from the sale.
Another option is that if you, the borrower, have passed away, your heirs may purchase the house by taking out a traditional mortgage themselves.
Notice in both these cases the house has been sold and a traditional mortgage has been taken out on the house. That leads us to the value of the house at the time of sale.
If the value of the house is less than what is owed on the Reverse Mortgage and the proceeds from the sale do not cover what is due on the loan, the bank endures the loss/difference. This is because the Reverse Mortgage is an FHA loan, which is a federal program, and is non recourse; this means FHA cannot charge the borrower or the heirs if the value of the house is less than what is due on the loan at the time of the sale.
In the opposite situation, if the value of the house is more than what is owed on the Reverse Mortgage, you (if you are living) or your heirs keep the money!
I hope I have answered all of your questions. If I can further explain more about a Reverse Mortgage, please give me a call at 541-868-1050, or email me at firstname.lastname@example.org.