Even if a reverse mortgage made sense when you first took out the loan, it may no longer be the case as your circumstances change.
You may no longer need financial assistance, or the mortgage proceeds may not cover your maintenance costs, homeowners insurance and property taxes.
You may have decided to move out or leave your home to your heirs.
There are ways to exit a reverse mortgage, including exercising your right to rescission, refinancing the mortgage, paying off the loan, selling the property and signing over the title to the lender.
Are you having second thoughts about your reverse mortgage, and researching how to get out of it?
The good news is that there are multiple ways to exit a reverse mortgage, from exercising your right to rescission to refinancing to paying off the balance.
Some of these strategies will better suit your needs than others. To find out which course of action may work best for you, read on!
If you've taken out a reverse mortgage only to change your mind further down the line, know that you're not alone. Many homeowners are in the same boat.
Reasons to get out of a reverse mortgage include:
You no longer need financial assistance to supplement your income or cover big life purchases.
The mortgage proceeds aren't sufficient to keep up with home maintenance costs, homeowners insurance and property taxes.
The property is no longer your primary residence because you're moving in with relatives, into a nursing home, an assisted living facility or other.
You've decided to leave your home to your heirs.
You live with someone who is not on the loan, and that person may have to vacate the property if you move out or pass away.
Experiencing buyer's remorse after taking out a reverse mortgage? These options may help.
1. Exercise Your Right to Cancel the Loan
The easiest way to stop a reverse mortgage is to exercise your right to rescission. This right is a form of consumer protection that enables you to walk away from a reverse mortgage without penalty, for any reason, within three days of signing the loan agreement.
To cancel the mortgage, you must inform the lender in writing. They then have 20 days to refund any fees, closing costs and unused funds you may have paid.
You will learn how this process works in the mandatory counseling session before finalizing the application. The lender should also remind you of your right to rescission during the closing process.
Remember: You can only rescind a reverse mortgage within three days of signing the paperwork, so you need to act quickly if you're having second thoughts.
What if you aren't looking to get out of the mortgage itself but simply want to change the terms?
In that case, consider refinancing. That means taking out a new reverse mortgage with a larger loan amount and better terms. For instance, you may negotiate a lower interest rate or change an adjustable to a fixed rate.
You can then use the proceeds to pay off your existing mortgage.
Refinancing could be a good option for you if:
Your home's value has increased
Interest rates are lower than when you took out your current mortgage
You are now eligible for a larger loan amount due to changes in your financial circumstances
However, refinancing comes with closing costs, so make sure you can afford them.
3. Refinance Into a Conventional Loan
If you want to pay off your current mortgage and no longer need the supplemental income it provides, consider taking out a conventional loan.
This allows you to keep and grow the equity in your home. It also allows you to pass it to your heirs without all the issues with a reverse mortgage.
Again, keep the closing costs in mind, and don't forget that you'll also have to make monthly payments on the loan.
4. Pay Off Your Reverse Mortgage Out-of-Pocket
If you can afford it, you can repay your reverse mortgage using your own funds without penalty at any time.
Note that you'll need to cover the total loan balance, which includes the amount you originally borrowed plus interest.
5. Sell the Property
Another way to exit a reverse mortgage is to sell your home. You will typically sell the property for the loan balance or 95% of your home's appraised value, whichever is less.
In most cases, this will be enough to satisfy the loan, and you can keep any remaining proceeds after you pay off the balance.
But what if you're underwater (i.e., you owe more on your home than it's worth on the market)? The federal government backs most reverse mortgages so that built-in insurance will cover the difference.
6. Sign the Title Over
As a last resort, you can sign the property's title over to the lender and walk away from the mortgage – and the home.
If you have not yet entered into a reverse mortgage and have good equity in your home, you may want to consider a Home Equity Agreement (HEA).
With a HEA, you trade a portion of the equity you have built up in your home for liquid cash. You receive a lump sum right away and can use it for any purpose, include maintenance of your home. The HEA provider gets a share of the proceeds when the property is sold, usually in 10 years. Until then, you get to live in your home and don't have to pay monthly payments or interest.
Click here to learn how to unlock your home equity to improve your financial situation and keep your home.
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