On occasion I get the questions, why does a reverse mortgage balance rise over time and what’s the maximum reverse mortgage balance can get to?
On all reverse mortgage types, whether they are HECM reverse mortgages or non-HECM reverse mortgages, monthly mortgage payments are optional to pay back the loan balance. In fact, you don’t have to make any reverse mortgage payments as long as you have the loan.
Feel free to watch my video on the various reverse mortgage types available https://youtu.be/XuA-GQE4MFs
However, it’s not a free ride. In exchange for the unpaid interest portion not being paid on a monthly basis, the unpaid interest gets tacked on to the balance of the reverse mortgage, making the reverse mortgage balance rise over time.
You can keep the reverse mortgage loan for the rest of your life and not have to make a single monthly mortgage payment ever again. There is no cap on how high the reverse mortgage balance can go. You theoretically can owe $500k on a home that is worth $300k and with a reverse mortgage, that is perfectly fine. The homeowners on the reverse mortgage loan documents can stay in the home as long as they like, as long as reverse mortgage rules are followed, regardless of the reverse mortgage loan balance and regardless of the current value of the home.
For some, this is hard to understand. There must be some catch. There isn’t. I heard someone say the other day, “I would never get a reverse mortgage because my parents have to buy back their home from the reverse mortgage lender”. The person was under the assumption that once the mortgage balance surpassed the home value, the home had to be bought back from the reverse mortgage lender. That is a reverse mortgage myth. It’s not true.
Once it comes time to sell the home or pay off the reverse mortgage, if the loan balance is higher than the sales price or lender appraised value, the difference becomes non-recourse. Meaning the homeowner(s) or heirs are not responsible for the shortage. On HECM reverse mortgages there is insurance that comes with the loan, MIP, that pays the gap. If the loan is a non-HECM reverse mortgage, and there is no MIP insurance, the lender absorbs the shortage, it also is a non-recourse loan.
To learn more about the HECM insurance, MIP, and other reverse mortgage costs, you can watch this video for more information, https://youtu.be/eGIuW03CiIM
A little known fact on HECM reverse mortgages, is that if the loan balance is greater than the estimated home value, and all borrowers on the reverse mortgage loan have passed away, the lender upon notification of the last deceased borrower will appraise the property. The heirs, have the option of buying the home from the lender for 95% of their appraised value. This is only an option if the loan balance is higher than the lender appraised value. The lender loses nothing. The MIP insurance that comes with the HECM reverse mortgage loan pays the shortage, and then heirs can go out and get their own loan to purchase the home from reverse mortgage lender and payoff the revised reverse mortgage loan balance once adjusted by the reverse mortgage lender who services the loan. This buyback option is not available on non-HECM reverse mortgage loans and is one of the many reverse mortgage facts people may not be aware of.
Here’s several other little known reverse mortgage facts, in the form of a video you can watch https://youtu.be/V2g59GK9yU4
I originate the California reverse mortgage, and was born, live and reside here and do California reverse mortgages throughout the state.
Feel free to call, text, email or fill out the brief form letting me know if you have any questions or your scenario and I will get back to you at my earliest convenience.
Kind regards,
Kevin Walton with C2 Reverse, 805-276-1942, www.californiareversemortgage.biz
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