When Is the Reverse Mortgage Loan Due? Key Details for Homeowners

A reverse mortgage loan lets eligible homeowners borrow money against their home equity without making monthly mortgage payments.

But an important question often arises: When is the reverse mortgage loan due?

The answer lies in the loan structure and specific events known as triggering events, such as the borrower's passing, a move from the primary residence, or a decision to sell the home. Understanding your loan terms, loan balance, and obligations will help you plan for repayment and protect your legacy.

In this guide, we cover key details about the reverse mortgage loan balance, borrower eligibility, payable notice timing and repayment options.

Whether you’re exploring a home equity conversion mortgage (HECM) insured by the Federal Housing Administration (FHA) or a jumbo reverse mortgage, it’s essential to know what happens when repayment is triggered.

Introduction to Reverse Mortgages

A reverse mortgage is a type of loan for homeowners aged 62 and older, allowing them to convert home equity into loan proceeds. Unlike a regular mortgage, no monthly payments are required.

• Funds can be received as a lump sum, line of credit, or monthly disbursement.

• Common uses include supplementing retirement income, paying property taxes, covering homeowners insurance, or managing health care expenses.

• Most reverse mortgages are HECMs, backed by the federal government via the FHA.

Before signing a reverse mortgage contract, it's crucial to understand the loan terms, costs, and responsibilities to avoid foreclosure action or misunderstanding.

Reverse Mortgage Borrower Eligibility

To qualify for a reverse mortgage, borrowers must:

• Be at least 62 years old

• Own the home outright or have a significant amount of home equity

• Live in the home as a primary residence

• Meet lender requirements for credit and property upkeep

Eligible non-borrowing spouses may remain in the home after the last surviving borrower dies, depending on the loan agreement.

Borrowers who fail to pay property taxes or property insurance, or those with prior delinquencies, may become ineligible.

Working with a Reverse Mortgage Lender

Choosing a reputable reverse mortgage lender is vital. Here's what to look for:

• Transparency about loan proceeds, mortgage insurance, and interest accrues conditions

• Clear explanation of loan terms and fees

• Options for HECMs or proprietary reverse mortgages

• Guidance on borrower responsibilities and post-loan planning

Always consult a financial advisor or attorney before signing any reverse mortgage contract.

Understanding the Reverse Mortgage Loan Balance

The loan balance includes:

• Amount borrowed

• Accrued interest

• Fees and mortgage insurance premiums

Over time, interest accrues, increasing the outstanding balance and decreasing the remaining equity.

Borrowers can monitor their loan balance by reviewing periodic statements from the reverse mortgage lender. Proceeds can be tailored to borrower needs: a lump sum, monthly loan proceeds, or a line of credit.

What Is a Non-Recourse Loan?

Most reverse mortgages are non-recourse loans, meaning:

• The lender can only collect repayment from the home’s value

• Borrowers or heirs aren’t liable for any shortfall if the loan balance exceeds the appraised value

FHA insurance ensures that if the home sells for less than the loan payoff, neither the estate nor the heirs owe the difference.

When Is the Reverse Mortgage Loan Due?

A reverse mortgage becomes due and payable when a triggering event occurs, such as:

• The last remaining borrower or co-borrower passes away

• The borrower moves out of the principal residence permanently

• The home is sold

• The borrower fails to meet contract terms (e.g., home maintenance, paying taxes or insurance)

Upon a triggering event, the lender sends a payable notice outlining the loan balance, repayment options, and a timeline.

Repayment Options for Reverse Mortgages

Once the reverse mortgage payoff is triggered:

• Heirs can repay the loan by selling the home

• Refinance with a traditional mortgage

• Use other assets to repay the debt

• Pay 95% of the appraised value, if lower than the loan balance

Borrowers can also repay during their lifetime, in full or in part, without penalty.

Other options include:

• Deed in lieu of foreclosure: Transfer the home back to the lender voluntarily

Maintaining the Home as a Primary Residence

Borrowers must maintain the property as their primary residence. Failing to do so can trigger early loan repayment.

Examples of issues that may cause this include:

• Moving to an assisted living facility or other healthcare facility for over 12 consecutive months

• Extended absence due to mental illness or physical illness

Lenders may request proof of residency, such as utility bills or tax filings. Notify the lender if your living situation changes.

Understanding Interest Accrual

Interest on a reverse mortgage accrues over time, meaning:

• You only pay interest on the amount actually borrowed

• The interest rate is determined by the lender and stated in the reverse mortgage contract

To reduce interest, some borrowers make partial repayments over time. Reviewing interest accrual annually is a smart personal finance practice.

What Happens After the Borrower's Passing?

When the last borrower dies, the loan becomes due. The lender sends a payable notice to the borrower’s heirs, who then:

• Choose to repay or refinance the loan

• Sell the home

• Transfer the home back via deed

Heirs usually have 6–12 months to settle the balance. Consulting a financial advisor or estate attorney is strongly recommended.

Avoiding Common Mistakes

To avoid complications:

• Keep contact info updated with your lender

• Pay your property taxes and homeowners insurance on time

• Understand all terms in the reverse mortgage contract

• Inform heirs of the loan and potential repayment scenarios

• Maintain the home in good condition

Being proactive helps protect your investment and ensures a smoother process for your loved ones.

Conclusion and Next Steps

A reverse mortgage loan can be a valuable financial tool, but it requires full understanding of when and how the loan becomes due. Knowing the role of triggering events, the conditions that activate a payable notice, and the available repayment options will help you manage your obligations with confidence.

Take time to:

• Review your loan paperwork

• Discuss plans with heirs

• Consult professionals for guidance

Need help understanding your reverse mortgage payoff options? Visit Equity Access Group to speak with a licensed advisor.

FAQ: Common Questions

When must a reverse mortgage be paid?

After a triggering event like the borrower’s passing, sale of the home, or move from the primary residence.

What is the 95% rule on a reverse mortgage?

Heirs can repay the loan for 95% of the home’s appraised value, even if the loan balance is higher.

What is the current reverse mortgage interest rate?

Rates vary by lender and loan type. Check with your reverse mortgage lender for specifics.

What is the grace period for a reverse mortgage?

Typically, heirs have 6–12 months to repay after a payable notice is issued.