A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), offers homeowners aged 62 and older a way to access the equity in their homes without having to sell. However, many homeowners may not fully understand the implications of moving out of their home while holding a reverse mortgage. Here’s what happens if the homeowner of a reverse home loan moves out.
When the primary homeowner of a reverse mortgage moves out, several important factors come into play. First and foremost, the reverse mortgage is designed for the borrower's primary residence. If the homeowner moves out, either temporarily or permanently, this can trigger significant consequences.
One of the key consequences of moving out is that the reverse mortgage may become due. Generally, the loan must be repaid when the borrower no longer occupies the property as their primary residence. This means that if a homeowner has to move into a care facility, downsizes, or relocates, the reverse mortgage lender has the right to call the loan. The homeowner or their estate must pay back the loan balance, which can involve selling the home to settle the debt.
In cases where the homeowner moves out for an extended period, usually more than 12 consecutive months, it is crucial to notify the reverse mortgage lender. Failure to do so may result in foreclosure, as the lender has the right to collect the loan if the terms of the agreement are violated.
There are exceptions, though. For instance, if the homeowner moves into a nursing home or assisted living facility due to health reasons, this may not necessarily lead to foreclosure, provided the right steps are taken and the lender is informed.
It’s also important to communicate with family members regarding reverse mortgage terms. If a homeowner passes away or decides to move out, heirs are responsible for settling the reverse mortgage. They can choose to refinance the loan in their names, pay off the loan balance, or sell the home to repay the mortgage. It’s essential for heirs to be aware of these options to avoid financial complications.
Homeowners considering a move should also think about their next steps carefully. Consulting with a financial advisor or a reverse mortgage specialist can help establish a clear understanding of the implications of moving out and how it will affect the loan. Being proactive can safeguard against unexpected financial consequences.
In summary, moving out of a home that has a reverse mortgage can lead to the loan becoming due, requiring payment and possibly the sale of the home. Homeowners must communicate with their lender and be aware of their options to ensure they’re making informed choices. Seeking professional advice is always recommended when navigating this complex financial landscape.
