Let’s say you get lucky and win the lottery or get a big inheritance someday. Are you allowed to pay off the HECM reverse mortgage in full? Absolutely! There is no prepayment penalty or limitation on paying off your reverse mortgage balance in full at any time.
Now, having said that, it may be a good idea to keep a small balance on the reverse mortgage and not pay it off in full. This is particularly the case if you have one of the LIBOR programs that come with the option to take proceeds in the form of a line of credit. If you pay the balance to zero, the lender will close out the reverse mortgage completely, which means you won’t have access to any of the money in the line of credit anymore.
Remember that interest only accrues on the money you’ve actually borrowed, so your interest costs will be minimal on a small balance. It doesn’t cost you hardly a thing to have the small balance out there.
On the other hand, you have now freed up a lot of money on your credit line again, which will grow and compound larger based on an annual growth rate. This means you can maintain access to the money in your reverse mortgage, maximize the growth of the available line of credit, and incur minimal interest costs over time.
Even if you don’t feel like you need the reverse mortgage anymore, it doesn’t hurt you to keep it open if the balance is next to nothing. God forbid something should happen when you're 80 or 85 and you suddenly need someone to come in four days a week to help clean and cook meals for you. In-home care is expensive! A large reverse mortgage credit line can provide you an additional financial resource to cover big unexpected expenses.
How much of a balance you need to maintain can vary somewhat from lender to lender, but it’s probably in the range of a few hundred dollars. Be sure to call into customer service before you send in a big check to make sure you don’t overpay and risk closing the account.