A reverse mortgage is a home loan that does not require repayment as long as you live in your home. However, the balance will eventually become due when you sell your home, move permanently out of the house or die.
Many seniors take out a reverse mortgage as a way to supplement their income in retirement. But if you later decide that it’s not right for you, there are several ways to get out of the loan.
1. Exercise Your Right of Rescission
Reverse mortgages are a popular option for people who want to supplement their income in retirement, but there are some cases where getting out of one makes sense. There are multiple ways to get out of a reverse mortgage, including exercising your right to rescission, refinancing and paying off the balance.
The right to rescission is a consumer protection that gives you three days to change your mind about a reverse mortgage. You can exercise this right by sending your lender a letter stating you wish to rescind the loan.
To qualify for a reverse mortgage, you must be at least 62 years old and own your home outright or have significant equity in it. You must also make your property taxes and homeowners insurance payments on time and maintain the home in good condition. You must also undergo counseling with a HUD-approved counselor before applying.
2. Sell Your Home
When you have a reverse mortgage, you do not make payments to the lender but still own the home. However, you must pay property taxes, home-owners insurance and maintain the house. Failing to do so could lead to foreclosure.
If you decide to sell, it is important that you contact your lender to discuss the process. They will provide you with a “loan payoff quote.” The loan balance, interest, mortgage insurance premiums and fees are usually paid off with proceeds from the sale of the home.
During this time, it is important to understand how much you owe on the mortgage and how much your house is worth. It’s often a good idea to hire a real estate agent who has experience selling homes with reverse mortgages. They can help you navigate the process smoothly and ensure that all proceeds are transferred properly. This is especially important if you choose to list your home as a for-sale-by-owner (FSBO).
3. Refinance
Reverse mortgages are complicated loans that may not be the right financial solution for everyone. It’s important to understand the pros and cons before getting one. Fortunately, if you change your mind, there are several ways to get out of a reverse mortgage.
A reverse mortgage is a loan that allows you to borrow against the equity in your home. You can receive the funds in a lump sum, line of credit or monthly payments. Reverse mortgages don’t have the debt-to-income requirements of traditional mortgages, but you will need to prove that you have enough income to pay property taxes, homeowners insurance and maintenance costs.
You can cancel a reverse mortgage within three days of closing by exercising your right of rescission. You can also get out of the loan by selling your home or refinancing into a traditional mortgage. In either case, you will need to pay off the loan balance. However, your heirs won’t have to pay back more than your home is worth.
4. Pay Off the Balance
The only way to fully get out of a reverse mortgage is to pay off the loan balance. This can be done by selling your home, refinancing into a conventional mortgage or even by signing a deed in lieu of foreclosure.
Reverse mortgages are not the right financial solution for everyone. However, just like traditional mortgages, there are many ways to exit a reverse mortgage if you change your mind or find the loan unsuitable for your goals.
Most reverse mortgages allow borrowers to exercise their right of rescission within three business days after closing to cancel the transaction without penalty. Additionally, most HECM loans have a cap that prevents you from owing more than your home is worth.
For these reasons, getting out of a reverse mortgage is easier than you might think. If you are considering one, do your research and consult with an independent financial adviser to make sure this type of loan is the best fit for your needs.
