The homeowner doesn’t make any monthly mortgage payments during the life of the loan. The loan is repaid when the homeowner or last surviving spouse on title ceases to occupy the home as a principal residence.
The reverse mortgage is a non-recourse loan, which means no debt will be left to the heirs and if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).
All reverse mortgage borrowers must be at least 62.
If a name is removed from the title, that person is no longer an owner of the home. When the person whose name is on the deed passes, the surviving spouse or the heirs are responsible for informing the loan servicer. Servicers also audit deaths of borrowers using a variety of tools. Future payments stop at death, but interest, mortgage insurance premiums and homeowner's insurance continue to accrue until the loan is settled. The Servicer will mail a notice to the surviving spouse or heirs informing them the loan is now due and payable. The surviving spouse or heirs are responsible for paying back the reverse mortgage. The loan can be paid back out of other resources or by selling the home. If there is a balance from the sale of the home after the reverse mortgage is paid, it belongs to the heirs.
When the borrower sells or conveys title of the property, passes away or does not maintain the property as principal residence for a period exceeding twelve months due to physical or mental illness, you have reached what is called a “maturity event.” This means the loan is due and payable. You or your estate will work closely with the Servicer to ensure your loan is paid in full in a timely manner. Once the Servicer is notified of the borrower's death, a "due and payable" letter will be mailed to the estate or heirs within 30 days that provides instructions for paying off the loan.
The estate has six months to satisfy the debt, but the heirs can request a 90-day extension, which must be approved by HUD. If necessary, the estate can request one additional 90-day extension, which also must be approved by HUD.
If the initial "due and payable" letter is not responded to, or the property has not sold after the final 90-day extension has expired, or the borrower has no heirs to help pay off the loan, then the Servicer may initiate foreclosure. If, however, you or your estate are actively working to either refinance the property or sell your property so as to satisfy the reverse mortgage, then foreclosure may be forestalled.
The key to a proper and clean end to a loan is to work closely with your Servicer from the time the loan is called due and payable.