A reverse mortgage can be an effective way for homeowners aged 62 and older to access the equity in their homes without making monthly mortgage payments. However, many homeowners wonder what happens to their reverse mortgage if they decide to sell their home. This article explores the implications of selling a home with a reverse mortgage and what you need to know.
When you sell your home that has a reverse mortgage, several factors come into play. First and foremost, it’s essential to understand that the reverse mortgage must be paid off when the home is sold. The loan amount, which typically includes the original loan balance plus any accrued interest and fees, will need to be settled at the time of sale.
If the sale price of your home is greater than the remaining balance on your reverse mortgage, you will receive any profit after paying off the loan. This can be a financial boost, allowing you to reinvest in another property, downsize, or secure funds for other retirement needs.
Conversely, if the sale price is less than the remaining balance on the reverse mortgage, the very nature of the reverse mortgage can protect you. Under the Home Equity Conversion Mortgage (HECM) program, which is the most common type of reverse mortgage, homeowners are only responsible for repaying the sales proceeds. Thus, if your home sells for less than the loan amount, you or your estate will not be accountable for the difference—a significant advantage of reverse mortgages.
It's crucial to notify your reverse mortgage lender before listing your home for sale. They'll provide the required information regarding the payoff amount and help you understand any specific steps you need to follow. It is also wise to consult with a real estate agent who understands the nuances of selling a home with a reverse mortgage to streamline the process.
Once the home is sold, the lender will receive payment from the sale proceeds to cover the reverse mortgage balance. Afterwards, if there are any leftover funds, they will be distributed to you or your heirs. If you are considering selling your home, it is advisable to evaluate your financial situation and plan accordingly to ensure that the transaction works in your favor.
In summary, selling your home with a reverse mortgage involves paying off the loan with the sale proceeds, but the benefits and protections provided by reverse mortgages can facilitate a smoother transition to your next living situation. Understanding these factors can help you navigate the sale process effectively and maximize your financial outcomes.
