Understanding the terms of a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage.
When people take out a traditional “forward” mortgage, there’s always a term attached: it has to be paid off within a specific time frame, such as 10, 15, or 30 years according to the loan agreement. So how long does a reverse mortgage last? Well, the short answer is: it depends.
Unlike traditional mortgages, there’s no set term length for reverse mortgages. Like any loan, they have to be repaid eventually. But as long as borrowers meet their loan responsibilities—paying property taxes, homeowners insurance, and for home maintenance as usual—reverse mortgages don’t have to be repaid until the borrowers permanently leave the home. That’s part of what makes HECM loans attractive to seniors, and a useful tool to include in their financial retirement plans.
According to the Centers for Disease Control (CDC), the average life expectancy in the U.S. is about 78 years1, with women (81 years) living somewhat longer than men (76 years). The number of years a reverse mortgage lasts can vary widely, and depends on your unique situation. For example, if you took out a reverse mortgage as soon as you were eligible at age 62 and lived an average life span staying comfortably in your home, you’d enjoy the benefits for about 16 years.
How do you pay off a reverse mortgage?
It’s up to you, really. Unlike a regular mortgage, you don’t have to make monthly mortgage payments2 with a HECM loan. That said, if during the life of the loan you have money available and want to make occasional payments to reduce the loan amount, you certainly can—but it’s not required, as long as you meet your responsibilities as mentioned above.
Most often, the loan is repaid by simply selling the home and using the proceeds to cover the loan balance. Any funds left over would go to your heirs. And in the unlikely event that the home sale isn’t enough to pay off the loan, there’s good news: a reverse mortgage is a kind of loan known as “non-recourse,” meaning neither you nor your heirs are responsible for the difference in that case.
What if my family doesn’t want to sell the house?
If your heirs want to keep the home in the family, they can choose to make arrangements to pay off the loan themselves. But it’s important to remember that in this instance, the full amount of the loan has to repaid, even if it exceeds the home’s value. Here’s everything adult children need to know about their parents getting a reverse mortgage.
What happens to my spouse if I pass away or have to move into a nursing home?
If your spouse is listed as a co-borrower on the loan, there are no worries. As long as they continue to live in the home and keep up with taxes, insurance, and home maintenance, they’ll continue to receive the benefits of the loan, and the loan will not come due in that case.
Plus, in 2014 protections were put in place that allow certain eligible non-borrowing spouses to remain in the home after the borrowing spouse passes away or leaves the home. More information about eligible non-borrowing spouses can be found here.
When can I get a reverse mortgage loan?
To qualify for a HECM reverse mortgage, you must be a homeowner at least 62 years of age or older, and live in the home as your primary residence. Your home doesn’t have to be completely paid off—in fact, the proceeds of a reverse mortgage are first used to pay off your current mortgage, and you get the rest. The key is having built up enough home equity in order to qualify, which is generally 50% or more of your home’s value. Learn more about how to qualify for a reverse mortgage.
If I get a reverse mortgage, will the bank own my home?
Absolutely not. Your name remains on the title, and you retain ownership for the life of the loan. All you have to do is continue paying property taxes and homeowners insurance as you do now, and keep the home in good repair.
“The bank owns your home” is just one of the misconceptions about reverse mortgages that has circulated since the early days of this FHA-insured loan program—which is ironic, because it was created to help people remain in their homes longer. You can discover more reverse mortgage facts and myths here.
At Longbridge Financial, we’re committed to helping you learn the truth about reverse mortgages, so you can make an informed decision on whether it’s right for you. And if we feel that a reverse mortgage isn’t a good fit for your situation, we’ll tell you so. Not all lenders make that pledge.
To learn more about a reverse mortgage and get all of your questions answered, fill out the form on this page to get a free info kit, or call Longbridge at 855-523-4326. There’s no cost and no obligation.
2 Real estate taxes, homeowners insurance, and property maintenance required