Then Does the Loan Have to Be Paid Back?
Unlike a traditional mortgage where mortgage payments must be made each month a Reverse mortgage pays the borrower.
In This Article We Will Discuss:
When Does a HECM/Reverse Mortgage Loan Have to Be Paid Back?
It is crucial that the home must be occupied by at least one borrower as their primary residence. Consequently, the loan does not mature due to the death of one borrower. In fact, the borrowers may relocate, or move into the residential care for seniors, just that one of the borrowers should be occupying the home.
In fact, after the demise of the last borrower, a non-borrowing spouse could continue to occupy the home with a deferment of the “due and payable” status in spite of not being on the loan or the home’s title. HECM loans fall due when certain events happen. These are termed “Maturity Events,” and could make HECMs fall due and payable.
Loan Maturity occurs when:
The property is not the main residence of at least one borrower any longer.
This could be as a result of the death or relocation of the last surviving borrower from the home.
The last borrower does not occupy the property for 12 consecutive months due to physical or mental illness.
One year is tantamount to vacating the home permanently.
A borrower defaults on their obligations under the terms of the loan.
Hers’s a couple fun facts:
Borrowers can eliminate their monthly mortgage payment.
There is no prepayment penalty if the borrower pays off the loan or sells the home.
Typical examples include failure to maintain the home or pay property taxes, property insurance, or other customary charges. However, these do not automatically cause the loan to mature. FHA has permitted the “due and payable” status of a HECM to de postponed under particular conditions when spouse that is not a party to the loan is involved.
If a non-borrowing spouse continues to occupy the home, they could have more rights under the new guidelines that took effect on August 4, 2014.
The borrower or the heirs, if the borrower has passed on, must inform the lender of the occurrence of a maturity event. They, therefore, have various options explained in the previous chapter.
The heirs usually:
Sell the home
Pay off the loan balance
Or Refinance the home
Did You Know?
Federal benefits, including Social Security are generally not affected by Reverse Mortgage Proceeds.
In order to understand exactly how they will be affected, we recommend that all of our customers consult their Federal benefits administrators or financial advisors.
The borrowers along with the heirs have the protection of the non-recourse feature in all the three situations. As a matter of fact, the heirs can sell or buy the home for lower of 95% of the evaluated value or the Mortgage Balance.
HUD Handbook 4235.1 Chapter 1-13. RECOVERY OF MORTGAGE PROCEEDS
The borrower may inhabit the property until the mortgage matures. A mortgage does not become due until the borrower passes on, the property is not the borrower’s principal residence any longer, the borrower fails to occupy the property for 12 consecutive months due to health reasons, or the borrower breaks the mortgage covenants.
When the mortgage matures, the property will be sold by the borrower or the borrower’s estate to repay the outstanding balance on the mortgage.
Since a HECM is a non-recourse loan, the amount the lender can recover from the borrower is limited to the value of the home. No deficiency judgment can be taken against the borrower or the estate since there is no personal liability for settling the loan balance.
24 CFR § 206.27. MORTGAGE PROVISIONS
Maturity date of the mortgage
The mortgage shall declare that the mortgage balance shall be due and payable in full if a mortgagor passes on and the property is not the primary home of at least one of the surviving mortgagor, or a mortgagor transfers all or his or her title in the property while no other mortgagor retains title to the property.
On account of the preceding sentence, a mortgagor retains the title in the property if he or she keeps holding title to any of the part of the property in fee simple, as a leasehold interest as stated in § 206.45(a), or as a life estate.
The mortgage shall declare that the mortgage balance shall fall due and payable in full, upon consent of the Secretary, if any of the followings happen:
(i) The property stops being the principal residence of a mortgagor for reasons save for death, and the property is no longer the primary home of at least one other mortgagor;
(ii) For over 12 consecutive months, a mortgagor does not occupy the property due to mental or physical illness and the property is no longer the principal residence of at least one other mortgagor; or
(iii) The mortgagor fails to perform the obligations under the mortgage.