What Happens If I Walk Away From A Reverse Mortgage?

Just as someone tries a new recipe after acquiring a perfect cookbook and finds it doesn't suit their taste, reverse mortgages also evoke similar realizations. They're not the right financial resource for every senior, and this might only become clear after getting one.

So, if you have thoughts about walking away from a reverse mortgage and are concerned about any implications after your exit, hang in there as I'll explain everything about how reverse mortgage exits work, when it's okay to leave, and how to do it smoothly.

Can You Walk Away from a Reverse Mortgage?

Yes, you can come out of a reverse mortgage, but there are different ways to do so, which we'll discuss in detail next. Some of these require you to pay money upfront, while others may require you to change the way you live, such as deciding to move out of your home.

But do you know what's always best? Consulting a loan officer first. Even after reading numerous articles and FAQs online, there are still some answers that only a loan officer can provide because they assess your overall financial situation and provide you with a personalized exit strategy.

How Does a Reverse Mortgage Work?

Before we get too far ahead, let's back up a bit and talk about how reverse mortgages work. All seniors who are aged 62 and older can qualify for a reverse mortgage.

But there’s more to it. There are also other factors, like the equity in your home, and you need to be in a primary residence while you’re applying for a reverse mortgage.

• Every applicant goes through a thorough HUD counseling process before they get approved. The counselor will provide you with detailed information about how reverse mortgages work, including their benefits and risks.

• They'll explain the different types of reverse mortgages available and help you understand how each option might impact your financial situation.

• They will conduct a thorough review of your financial situation to determine if a reverse mortgage is a suitable option for you.

• They'll discuss your income, expenses, assets, and debts to ensure you fully understand the implications of taking out a reverse mortgage.

Once approved and at closing, as you may probably know, you will keep receiving the funds in your preferred payment mode, and repay only when you move out, sell, or upon passing.

6 Reverse Mortgage Scenarios: The Right Time to Walk Away

In simple terms, the right time to walk away from a reverse mortgage depends on your individual circumstances. Here are some common scenarios where it might make sense to consider exiting a reverse mortgage:

• 1. When You Need to Move into a Nursing Home or Assisted Living

  If you or your spouse require more care and need to move into a nursing home or assisted living facility, you might want to exit the reverse mortgage to free up funds for your new living arrangements.

  This allows you to use the money from selling your home to pay for your care without worrying about ongoing loan obligations.

• 2. If You're Second-Guessing Your Choice

  Sometimes, people realize they made a mistake by getting a reverse mortgage, perhaps because they didn't fully understand the terms or consequences.

  Exiting the reverse mortgage allows them to undo this decision and explore other financial options that may better suit their needs and preferences.

• 3. When You Realize Your Reverse Mortgage Isn’t Enough to Cover Expenses

  If the funds from the reverse mortgage aren't enough to cover essential expenses like insurance, taxes, and home maintenance, it can create financial stress.

  Walking away from the reverse mortgage enables homeowners to avoid falling behind on these payments and potentially facing foreclosure.

• 4. If You Want to Leave Your Home to Your Heirs

  Some homeowners want to leave their homes to their heirs without burdening them with the obligation to pay off the reverse mortgage.

  Exiting the reverse mortgage allows them to pass on their home free and clear, providing a smoother inheritance process for their loved ones.

• 5. When You Live with Someone Who Isn't on the Loan

  If someone else lives in the home who isn't on the reverse mortgage loan, such as a family member or roommate, they could face eviction if the borrower passes away or moves out.

  Exiting the reverse mortgage can protect these non-borrower residents from losing their homes and provide them with stability in their living situation.

• 6. If You No Longer Need Financial Assistance from a Reverse Mortgage

  If the homeowner's financial situation improves over time and they no longer require the extra income provided by the reverse mortgage, it may be beneficial to walk away from the loan.

  This allows them to reduce unnecessary debt and expenses associated with the reverse mortgage, freeing up their finances for other purposes or investments.

Reverse Mortgage Repayment Options

When you decide to say goodbye to your reverse mortgage, you'll need to repay the loan. Thankfully, you've got a few options on how to do that.

• Sell the Home

  When it's time to repay a reverse mortgage, one option is to sell the home. The money from selling the house is then used to pay off the loan balance. This is the most common way to repay a reverse mortgage.

• Refinance Into a Regular Forward Mortgage

  Another option for repayment is to refinance the reverse mortgage into a traditional mortgage.

  This means getting a new loan to pay off the reverse mortgage. Alternatively, heirs can use their own finances to purchase the home for the amount owed on the loan or 95% of the home's appraised value, whichever is less.

• Sign Title Over

  In some cases, heirs may choose to sign the title of the home over to the lender and walk away from the loan. This means giving up ownership of the property to satisfy the loan obligation.

5 Strategies for a Neat Walk Away from a Reverse Mortgage

You know how we don’t like plot twists in movies, the same goes with reverse mortgages. We don’t want any roadblocks, right? So here are a few expert strategies you can use for a smooth walk away.

• Understand Your Rights

  Familiarize yourself with your rights as a borrower. Know the process for canceling the loan within the three-day rescission period if you have second thoughts after signing the paperwork.

• Explore Refinancing

  If you're not satisfied with the terms of your current reverse mortgage, explore refinancing options. This could involve negotiating better terms or transitioning to a conventional loan if it better suits your needs.

• Pay Off the Loan

  If you decide to repay the reverse mortgage, evaluate your options. You can use your own funds to pay off the loan balance at any time without penalty. Consider if this is financially feasible for you.

• Sell the Property

  Selling the property is another way to exit a reverse mortgage. Assess the market value of your home and determine if selling would cover the loan balance. Remember that any proceeds remaining after paying off the loan are yours to keep.

• Consider Signing the Title To Transfer Ownership

  If no repayment option suits you, you can sign the property's title over to the lender. By doing this, you walk away from both the mortgage and the home itself.

  It's a way to end your obligation to the lender, but it also means you lose ownership of your property.

These changes aim to enhance flexibility and affordability for borrowers participating in the HECM for Purchase program, providing them with more financial options when buying a new home.

Final Thoughts on Exiting the Loan

Alright, it’s time for a wrap-up! Walking away from a reverse mortgage isn't something to rush into. Take your time to think it through, consider your finances, and explore all your options for paying it off.

You don't have to figure it all out by yourself! Reach out to a reverse mortgage loan officer as they're there to help you every step of the way. With their support and a solid plan, you'll be waving goodbye to that reverse mortgage soon with confidence. So, no need to stress, you've got this!