How to Settle a Reverse Mortgage Ahead of Schedule

Retirement is a well-deserved respite after a lifetime of hard work, but it can also strain your budget. You may need 80% of your pre-retirement income to continue leading the same lifestyle once you retire, but this is not always feasible. 

So, if you’re having trouble figuring out how to make ends meet after retirement, consider getting a reverse mortgage. This is a unique form of loan targeted for seniors, which can provide them with a much-needed financial cushion. It enables them to borrow against their home equity and receive funds as a monthly payment, lump sum, or line of credit.

Home equity conversion mortgage (HECM) is the most common type of reverse mortgage and is offered to homeowners aged 62 and over. A reverse mortgage differs from traditional mortgages in that the borrower receives payments from their mortgage lender, instead of the other way around. 

Typically, a reverse mortgage does not have to be repaid until you move out, sell your home, or pass away. At that moment, you or your heirs will repay the borrowed sum plus interest and fees. You can also consider paying off the reverse mortgage earlier and release your family from this duty. But, how do you pay back a reverse mortgage earlier than planned? Below, you can find four answers that might give you an idea.

Make more frequent payments

Contributing additional funds to your mortgage is a straightforward approach to hastening its repayment. Rather than remitting one monthly payment, divide the amount into two halves and pay every week. This method will result in an extra annual lump sum equivalent to one full installment. Check your mortgage agreement to determine whether you may increase the frequency of payments. These sorts of possibilities are known as prepayment privileges. 

In addition, speak with your lender about prepayment alternatives for your account. Collaborating with a reliable reverse mortgage lender is crucial in this process. You need to work with someone who has extensive knowledge and experience, always ready to offer guidance and help you come up with a desirable outcome. If your lender confirms that you qualify for this option, calculate your monthly income and start making more monthly payments. 

Increase the monthly amount you pay

You may also want to try raising the monthly payment amount. Even the slightest increase in your payments can have a positive impact. Nonetheless, opting to raise your monthly mortgage payment could mean being unable to lower it until the term ends. A mortgage arrangement might last anywhere from a few months to five years or more.

Determine how much you wish to pay and request that it be applied to your main balance. Pay more every month, once a year, or anytime you have more money to give. But, once again, be sure your lender assigns the payments to your principal sum.

Sell your home

Selling your property is possible despite having a reverse mortgage, with the condition that you use the proceeds from the sale to settle your loan. The non-recourse feature of HECM loans provides an advantage in this case since it ensures that if the selling price falls short of paying off your debt completely, there will be no attempts by lenders to chase after you for any remaining balance. And any outstanding amounts get refunded by FHA on behalf of lenders.

But if the loan is paid off in full, any remaining funds belong to either the borrower or their estate. HECMs are supported by the Federal Housing Administration, which considers all loan conditions satisfied if the property is sold for 95% of its assessed value by the borrower or their successors.

Refinance the loan

Another method to settle a reverse mortgage is by refinancing it. Although unique in enabling borrowers to receive funds without making payments, these types of mortgages are not exempt from the option of being refinanced like any other loan. If you currently have a reverse mortgage and want different terms, another alternative available would be undertaking an additional one with more favorable conditions.  

Alternatively, if opting for traditional financing appeals to you better than maintaining your current arrangement, obtaining a new home loan could provide sufficient proceeds. This assures repayment while also freeing constraints on using your property presently associated with your existing agreement, such as potentially requiring prompt payment should you move out.

Final thoughts

Paying off debts early, including the reverse mortgage, is a difficult financial choice that demands careful preparation and consideration before proceeding. That’s why you should always consult with a mortgage specialist or engage a financial counselor to assist you in finding the simplest solution. It’s critical to recognize that paying off the reverse mortgage early may raise your monthly financial commitments, but in the long run, it provides peace of mind. So, with the assistance of a mortgage professional, attorney, or tax adviser, you may create a specific strategy for paying off your obligations while maintaining your present lifestyle and habits.