How to Get Out of a Reverse Mortgage
A reverse mortgage can feel like a lifeline at first, but many homeowners (or their families) end up realizing it’s not the right fit. Whether your finances have changed, you want to move, or you’re worried about leaving debt behind, getting out of a reverse mortgage is usually possible.
The most common ways to exit a reverse mortgage include paying it off, refinancing into a traditional loan, or selling the home. Below, we’ll cover what you need to know about the costs, timelines and risks of each option. We’ll also touch on alternatives if you still want to borrow against your home equity.
- Want out immediately? Sell the home.
- Want to keep the home? Refinance into a traditional loan.
- Just signed recently? You can cancel within three days.
- Recently inherited the reverse mortgage? Pay off or sell within the required timeline.
How a reverse mortgage works
Reverse mortgages work differently from traditional (“forward”) mortgages. With a traditional mortgage, you borrow money to purchase a home and make monthly payments until the loan is paid in full. But when a homeowner takes out a reverse mortgage, instead of making payments, they receive payouts from the lender based on how much equity is in the home.
As a traditional mortgage progresses, a homeowner builds home equity (the portion of the home they own outright) and the loan balance decreases. But as a reverse mortgage continues, the borrower’s home equity decreases and the amount they owe the lender increases. Interest and fees will also accrue, causing the loan balance to grow.
A reverse mortgage doesn’t have to be paid off until the last surviving borrower passes away, sells the property or no longer lives there. In most cases, homeowners or their heirs need to sell the home to satisfy the loan.
Learn more about the pros and cons of reverse mortgages.
The most common type of reverse mortgage is a home equity conversion mortgage (HECM), which is backed by the Federal Housing Administration (FHA).
How to get out of a reverse mortgage: 5 options
| Option | Best if… | Pros | Cons |
|---|---|---|---|
| Rescission | You’re within three days of closing |
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| Pay off the loan | You have savings or access to a large sum of cash |
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| Refinance into a traditional (forward) mortgage | You can afford to take on monthly payments |
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| Sell | You want to move or downsize |
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| Refinance into a new reverse mortgage | You want better terms |
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1. If you just signed the loan (within three days): Exercise your right of rescission
If you regret your reverse mortgage within a matter of days after you’ve signed the paperwork, you can take advantage of the “right of rescission” period.
The right of rescission is a consumer protection that lets you change your mind for any reason, without penalty, up to three business days after signing the loan agreement. To cancel your reverse mortgage via this option, you’ll need to inform your lender in writing. The lender has to return any money you’ve paid for the financing within 20 days.
2. If you have money to work with: Pay off the reverse mortgage
Paying off the loan balance in full is another simple way to get out of a reverse mortgage.
In most cases, you can do this at any time without incurring a prepayment penalty.
If you have enough cash on hand to pay off the loan, you’re in great shape — but what if you don’t? Typically, you’d need to seek another form of financing that can pay off the reverse mortgage balance. This could be a cash-out refinance, home equity loan or home equity line of credit (HELOC), or even a personal loan.
Learn more about whether you should choose a reverse mortgage, home equity loan or HELOC.
3. If you can afford to take on a monthly payment: Refinance into a traditional loan
If you no longer need the additional income that a reverse mortgage provides and can afford to make a monthly mortgage payment, you can refinance your reverse mortgage with a conventional loan. You might consider this path if you’re looking to preserve your home equity and avoid potential reverse mortgage problems for your heirs.
However, this option might not be feasible if you took out the reverse mortgage because you needed additional income to cover your monthly mortgage expenses or pay for home repairs.
4. If it’s more important to get out of the loan than keep the home: Sell your house
Another way to get out of a reverse mortgage is to sell your home. The sale proceeds usually satisfy the loan even if the reverse mortgage is underwater. In that case, borrowers typically sell the home for the lesser of the loan balance or 95% of the property’s appraised value. Because HECMs are insured by the federal government, the mortgage insurance built into the loan takes care of the remaining balance.
5. If you want better terms: Refinance your reverse mortgage
Another option is refinancing into a new reverse mortgage with better terms. For example, if interest rates have decreased significantly since taking out your original reverse mortgage, it might benefit you to refinance. With this path, you’ll pay less interest over the life of the loan.
How to avoid reverse mortgage foreclosure
At the beginning, a reverse mortgage can be fairly smooth sailing: you’re receiving payouts and don’t have to make any payments. But homeowners (or heirs) often run into issues when the reverse mortgage comes due.
Learn more about how to calculate your reverse mortgage payout.
Events that trigger a reverse mortgage to come due include:
- The home is sold or transferred
- All the homeowners listed on the reverse mortgage have died
- The home is no longer the borrower’s primary residence, or they haven’t lived there for 12 straight months or more
- The borrower hasn’t maintained the home to the lender’s requirements
- The borrower has failed to pay property taxes or homeowners insurance
If foreclosure is starting because of unpaid property taxes, missed homeowners insurance or maintenance issues, you may be able to correct the default fairly quickly and cheaply.
But, once a triggering event occurs that can’t be rectified, and/or you can’t repay the outstanding debt, you’ll have new requirements to meet:
| Time after triggering event | What happens | What you have to do |
|---|---|---|
| Within 30 days | Your loan servicer sends a “Due and Payable” letter 30 days or less after maturity | You must respond within 30 days of receiving this letter |
| Within six months | Your lender will tell you a date by which you must pay back the debt | Pay back the debt or request an extension |
| After six months | The debt is due | Pay back the debt or request a 90-day extension |
| After nine months | The debt is due | You may usually request a second 90-day extension if needed |
| After 12 months | The debt is past due and will enter foreclosure | Refinance, sell or walk away and allow foreclosure to proceed |
While you can make partial or full payments on a reverse mortgage at any time without penalty, those payments alone won’t stop foreclosure if you’re not meeting your obligations.
Reverse mortgage borrowers must continue to pay property taxes, homeowners insurance and maintain the home. Failing to do so can lead to default and foreclosure.
In addition, once a reverse mortgage becomes “due and payable” after a triggering event, the loan must typically be repaid in full within a set timeframe. Making partial payments may reduce the balance, but it won’t prevent foreclosure unless you fully resolve the default or pay off the loan.
What to do if you’re facing reverse mortgage problems
Communicate with your lender
At the first sign of trouble, reach out to your lender to discuss the reverse mortgage problems you’re facing. They can help you understand your options.
Seek help from a HUD-approved counselor
If you have concerns about your reverse mortgage, speak to a reverse mortgage counselor. In addition to discussing the loan repayment process, the counselor can also help you locate other federal or state resources, such as SNAP or other government programs.
Review your long-term plans
Know what goals you want to prioritize, including whether you wish to remain in the home long term or pass the property to your heirs.
Consider the costs
Keep in mind that any course of action you take will come at a cost. Refinancing your existing loan with either a conventional mortgage or a new reverse mortgage will entail closing costs.
Submit a complaint
- If you run into reverse mortgage problems so severe that you believe your lender is breaking the law, you can submit a complaint to the Consumer Financial Protection Bureau.
- If you believe you’ve been the victim of a scam, contact your local police and state attorney general. You may also want to report a scam to the Federal Trade Commission (FTC).
- If the situation involves the financial exploitation of a senior, you can seek help from your local adult protective services agency.
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