A reverse mortgage can be a valuable financial tool for seniors in the United States, but it's essential to understand how it operates, especially when considering moving. If you have a reverse mortgage and are contemplating a move, several factors will influence your situation. Let's explore what happens to your reverse mortgage if you decide to relocate.
First and foremost, a reverse mortgage is designed to allow homeowners aged 62 or older to convert part of their home equity into tax-free income. However, this arrangement is contingent on the homeowner living in the property as their primary residence. If you move out of your home, the terms of your reverse mortgage can change dramatically.
When you move, the reverse mortgage loan is typically due and payable. This is because the loan is predicated on your occupancy of the property. If you sell your home and move to a new residence, you must repay the reverse mortgage from the proceeds of the sale. This repayment, in essence, is the amount borrowed plus any accrued interest and fees. Should the sale of the property not cover the entire loan amount, the Federal Housing Administration (FHA) insurance would cover the difference, and you would not be held personally liable for any debt exceeding the home’s value.
In some cases, homeowners may consider simply moving into another home without selling the current property. If you retain ownership and become a non-occupying borrower, it can lead to more complicated scenarios. The reverse mortgage lender typically requires repayment if there’s no longer a primary residence in the home securing the loan.
If you plan on moving but are interested in maintaining the benefits of a reverse mortgage, you could purchase a new home using the proceeds from your current reverse mortgage. This situation, however, often requires that the new property meets specific eligibility criteria set forth by the FHA, including being your primary residence and meeting safety standards.
Another option to consider is a 'Home Equity Conversion Mortgage for Purchase' (HECM for Purchase), which allows seniors to buy a new home using the proceeds from a reverse mortgage. This type of transaction involves moving directly into a new abode while benefiting from the reverse mortgage structure.
Before making any significant decisions regarding your reverse mortgage and a potential move, it's crucial to consult with a financial advisor or a reverse mortgage specialist. They can provide tailored advice based on your financial situation, current mortgage status, and future housing plans. Understanding the implications of moving with a reverse mortgage can help you make informed decisions that protect your financial well-being.
In summary, if you move out of a home under a reverse mortgage, the loan will typically become due, and you will need to repay it. Whether through a sale, purchasing a new home, or other options, it's essential to be aware of the terms and conditions that govern your reverse mortgage to navigate any transitions smoothly.
