When a person or a couple takes out a reverse mortgage, what are the final considerations that must be made at the end of the loan cycle?
The short answer is that when the last borrower on the loan decides to move out voluntarily or because they die or are in need of too much care to stay in the home then the mortgage has to be paid off.  The simplest ways to pay of the mortgage is to sell the home to an heir, relative or on the open market.   If the mortgage exceeds the loan balance, then FHA will accept 95% of appraised value as the payoff leaving the owner or heirs the ability to dispose of the home without creating a foreclosure or a negative experience.   The 5% buffer allows for closing costs to be paid from the sales.   If the mortgage is less than the value of the home then the sale will mean that net proceeds (profit from the sale) go to the owner/heirs.  

Reverse mortgages come in a variety of packages depending on the needs and wants of the individual obtaining the loan.  For some, there is a Life Expectancy Set Aside (LESA) where future tax and insurance payments are put aside so that they are automatically paid for the borrower.  For others there is a line of credit.   For others there is a monthly payment (income stream).    Some of the features can be used in combination.   The relevance of this to the question “When/How Does the Reverse Mortgage Get Paid Off?” is this: unused funds are considered equity so they are not included in the payoff of the loan.  But unused funds may be available for use up until the time of the payoff (and once used they are then indeed included in the payoff).   The use of these funds should be considered in consultation with the family, financial planner, accountant, and/or attorney.  

In conclusion, the mortgage will never result in foreclosure and the owner will never be required to give up title as long they live in home as their primary residence, maintain the home (keep it in good repair) and pay the taxes and insurance.  When the last borrower leaves the home for whatever reason (death or choice) the home must be sold within 12 months.  Under extenuating circumstances, FHA has the option to be flexible and work with the owner and/or heirs and real estate agent but the rule is to sell within 12 months.

More questions? Ask Renee! Or find out more on our reverse mortgage/ HECM mortgage pages.