Reverse mortgages are a means for senior citizens to obtain income by drawing on the equity in their homes. The money comes in monthly installments. Think of it as the opposite of a regular mortgage: The lender sends you checks, rather than you writing checks to the lender. Since reverse mortgages can only be made on the senior's primary residence, the mortgage must be paid off when the owner moves, sells the house or dies. In the case of death, the heirs must sell the home or, if they wish to keep it, pay off the loan or refinance it.
Paying Off a Reverse Mortgage
Decide the date you want to pay off the mortgage. Contact the lender to request "no further draws" against the equity line of credit (if a line of credit was set up), then request a payoff statement that is good through and including the month when the loan is to be paid off (add three of four additional days as a precaution). If you are selling the home, an attorney or title company closing agent can handle the paperwork. The payoff statement will list all payments made over the course of the loan, accumulated interest and costs associated with taking out the mortgage (refer to your initial mortgage documents). If you have questions regarding the payoff amount, contact the lender.
Expect your lender to include 34 days of interest in the payoff, which provides padding in case the payment is posted after the first of the month. Reverse mortgages are government loans, insured by the Federal Housing Authority. As with all FHA loans, the posting is on the first business day of the month, which a weekend could push to the third day of the month.
Let your home insurance agent know the expected payoff date. If you are selling the home, you may be owed a reimbursement if you had prepaid for an entire year of insurance.
If a title company closing agent is handling the mortgage paperwork as part of a sale of the property, it will deal with lien releases on your behalf. If you are simply paying back the loan, you still may find it's worth the small fee for the closing agent to handle the lien releases. Two releases are required: one for the lender and the other for the FHA for the mortgage insurance premium. If you are handling the payoff on your own, send the money in the form of cashier check in through overnight mail or make a wire transfer to the lender's bank. Follow up with the lender to make sure the funds arrived.
Ask the title company agent whether you need to fill out a form to receive a prorated rebate of mortgage insurance premiums. Also request any fees that were "set aside" and now may be excess. Attend the closing if you are selling the home and ask questions about any documents you do not understand.
If the home is in a living trust, it is advisable to have an attorney or title company take care of paying off the mortgage. This transaction would have to comply with trust requirements.
If the payoff amount is higher amount than market value (when selling or paying off the home), the lesser of the figures will be used. Payoff will never exceed the value. FHA mortgage insurance pays the deficit.
It is best to request a stop of monthly funds (if you receive monthly funds) at least 30 days in advance of payoff to insure correct figures. Talk with your loan servicer if handling this yourself.
Things You'll Need
Lender contact information
HUD case number
Loan balance from lender
Closing costs from initial closing