Gene Mullen's Blog
You got a reverse mortgage on your home to help with your retirement, but now, you want to move out. Maybe its because your kids want the house, or it just doesn't work for you anymore due to the climate or just how far away your family lives. Makes sense, when you were younger your life changed all the time, that doesn’t stop after retirement. So, are you stuck? Or can you sell it?
First, what is a Reverse Mortgage?
A "reverse mortgage" is a special form of home financing that pays out based on the equity of your home. While you continue living in the home, the loan pays either a single lump sum, as a line of credit, monthly payments, or in some combination thereof to help cover the cost of your retirement. In the United States, the home must be the primary residence, and the homeowner must be over the age of 62 to qualify. While originally started to allow seniors to keep a more stable income, the IRS doesn't see it that way and instead looks at the income as a "loan advance" and taxes it accordingly.
Paying off Your Reverse Mortgage
Typically, the point of a reverse mortgage is for the income. That means you defer payment of the loan until you die, though it comes due when you sell the home or if you live elsewhere for a whole year. That means it usually falls to your heirs to handle it. They can pay it off, refinance it or sell the home. As a last resort, they can give up the property to the lender in place of repayment, but they give up all the rights of ownership to the property. Its possible to get a Home Equity Conversion Mortgage (HECM) from the FHA restricted to the value of your home. This type of loan protects your heirs since the mortgage can't be more than the value of the house, which means all they have to do is hand over the property and they are free and clear.
Selling Your Home Under the Reverse Mortgage
Selling your reverse mortgaged home can be complicated. Your reverse mortgage compounds interest over its whole life on both the owed interested and the borrowed amount. That means the mortgage could be substantially higher than the original borrowed amount. If you want to sell the home, no matter if its family or open market, first start by figuring out just how much remains on the mortgage. Include the whole borrowed amount, owed interest, compounded interest and any fees your lender may charge. Double check that number by requesting a payoff amount from the lender. They will send you an estimated payoff amount based on your current status and will only apply for a specific date range. Keep in mind that regardless if you sell the home for the original amount, if it takes longer than you originally planned, those numbers could go up.
Want to know if your home is a good candidate for a reverse mortgage sale? Refer to your local real estate agent to find out if the market value of your home is high enough to make it a good idea.