A reverse mortgage is a financial tool designed mainly for older homeowners, allowing them to convert part of their home equity into cash. However, many homeowners wonder what happens to a reverse mortgage if they decide to move out. Understanding the consequences of a reverse mortgage in such situations is crucial for making informed financial decisions.
When a homeowner with a reverse mortgage moves out of their home, several factors come into play. The most important aspect to remember is that a reverse mortgage is intended to be repaid when the borrower no longer uses the property as their primary residence. Therefore, moving out triggers specific conditions related to the loan.
First and foremost, the lender will typically require the loan to be paid in full. This is because reverse mortgages are structured to allow homeowners to access equity while living in the home. Once the homeowner moves permanently to another location, whether it’s to a retirement community, assisted living facility, or elsewhere, the property is no longer the primary residence, initiating the loan payoff process.
If the homeowner sells the house after moving out, the proceeds from the sale will first go to pay off the reverse mortgage balance. If the market value of the home has appreciated since the mortgage was taken out, the homeowner may have surplus funds after settling the loan. However, if the home has decreased in value, the homeowner could owe more than what the house sells for, but with a reverse mortgage insured by the Federal Housing Administration (FHA), they will not be held liable for more than the house's value.
Should the homeowner not sell the property, the lender may pursue recovery of the loan amount through other means. This might involve foreclosure, where the lender takes possession of the home to recover the debt. Homeowners should ensure they communicate their plans to the lender to understand how to proceed and what options may be available to them.
Another essential consideration is the timing of the move. In cases where a homeowner temporarily leaves their property, such as for extended travel or medical treatment, they may be able to retain their reverse mortgage if they return to the residence within 12 months. However, if the absence extends beyond this period, it may qualify as a permanent move, thus starting the loan payoff process.
Overall, moving out of a home with a reverse mortgage is not as straightforward as transferring a conventional mortgage. Homeowners must plan ahead, understanding the implications of their move on their financial obligations. Consulting with a financial advisor or a reverse mortgage specialist can provide insight and strategic options tailored to their unique circumstances.
In summary, if a reverse mortgage homeowner decides to move, they should expect to pay off their loan balance, either by selling the home or potentially facing foreclosure if the property is left unsold. Ensuring thorough knowledge and communication with lenders can lead to better outcomes during this transition.
