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How to get out of a reverse mortgage if your circumstances change
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Key Points
If your circumstances change, there are several established ways to repay or end a reverse mortgage loan.
The options to get out of a reverse mortgage vary based on where you are in the loan lifecycle. For example, if you’ve just closed, you may be eligible to use the three-day right of rescission.
Other options may include selling your home and using the proceeds to repay the loan, refinancing into a new reverse mortgage or traditional mortgage, or, in rare cases, using deed-in-lieu of foreclosure.
One of the biggest misconceptions about reverse mortgages is that once you sign the loan documents, you’re locked in for life. That isn’t the case. While reverse mortgages are intended to be long-term loans, borrowers still have options if their circumstances change. Maybe you decide it’s time to move closer to family or find a senior living community that peaks your interests. No matter what changed, you always have options.
Whether you are considering a reverse mortgage for yourself or exploring options for a loved one, this article will walk you through everything you need to know about reverse mortgages and what happens at the end of the loan.
Understanding how reverse mortgages work
A reverse mortgage doesn’t sell your home or give it away. Much like a home equity line of credit, it is a loan that may let you borrow against the equity in your home. However, with a reverse mortgage, there are no required monthly mortgage payments—instead, you borrow money against the equity in your home and generally repay the loan in a lump sum later. (Though you can make voluntary payments at any point.)
While that might sound too good to be true, the loan does come with stipulations. Reverse mortgage borrowers must live in the home as their primary residence, continue paying property taxes and homeowners insurance, and maintain the home.
The biggest difference from other loans, like a traditional mortgage, is that reverse mortgages are negative amortization loans. This means the loan balance grows over time as interest and fees are added. By contrast, most loans require monthly payments that reduce the balance over time.
→ Learn more in our guide: What is a reverse mortgage and how does it work?
When might a reverse mortgage end?
A reverse mortgage comes with costs and fees and is designed to be a long-term loan. But life doesn’t always go as planned. For example, you might decide to:
- Move closer to family
- Transition to assisted living or senior living
- Decide to downsize to a smaller home
- Experience a change in your financial needs
Depending on your circumstances, there are established ways to repay a reverse mortgage or bring the loan to an end.
→Learn more in How to pay back a reverse mortgage: 7 options explained
6 ways to repay or end a reverse mortgage
The method you use to transition out of your reverse mortgage will depend on where you are in the loan process and whether you are a borrower, heir, or spouse of a borrower. Keep in mind, the process can take time.
Below, we cover six options and who they are available to.
| Option | What it is | Who it’s available To |
| 1. Three-day right of rescission | Cancel the reverse mortgage within three business days of closing without penalty. | Reverse mortgage borrowers only (within three business days of closing). |
| 2. Pay off the loan with private funds | Repay the reverse mortgage balance using personal assets, such as savings or investments. | Borrowers and heirs. |
| 3. Sell your home | Sell the home and use the proceeds to pay off the reverse mortgage, keeping any remaining equity after the loan is repaid. | Borrowers and heirs. |
| 4. Refinance your reverse mortgage | Replace the current reverse mortgage with a new reverse mortgage that may provide updated terms or additional available equity. | Eligible borrowers or heirs. |
| 5. Take out a new traditional mortgage | Replace the reverse mortgage with a conventional (forward) mortgage. | Qualified borrowers, heirs, or eligible non-borrowing spouses. |
| 6. Deed in lieu of foreclosure | Voluntarily transfer ownership of the home to the lender to avoid foreclosure. | Eligible borrowers (subject to lender approval). |
1. Use your three-day right of rescission
The regulations around reverse mortgages have changed over the years, and one of the safeguards borrowers have is called the three-day right of rescission. All borrowers have three business days from the closing date to exercise their right of rescission and cancel a reverse mortgage without penalties.
To invoke the right of rescission, you must notify your lender in writing via certified mail within the three-day period. Once the lender receives the rescission notice, they are required to return any funds paid by the borrower within 20 days, including closing costs and unused loan funds. This option is only available to the reverse mortgage borrower within three business days of the loan closing.
2. Pay off the loan balance with private funds
If your circumstances change after the rescission period, borrowers need to repay the full outstanding loan balance, including borrowed principal, accrued interest, fees, and mortgage insurance premiums. So, one option is to use other assets to satisfy the loan. For example, you might use personal savings or sell stocks to pay off the balance.
This option is available to both the borrower and their heirs. In fact, you can make voluntary reverse mortgage payments at any time if you want to reduce the reverse mortgage balance.
3. Sell your home and repay with the sale proceeds
This is the most common way to end a reverse mortgage. If a homeowner decides to sell their home, the proceeds from the sale can be used to pay off the reverse mortgage, and any remaining funds after the loan balance is settled belong to the homeowner or their heirs.
This option can also be used by your heirs if they don’t wish to keep the home. For Home Equity Conversion Mortgages (HECMs), the non-recourse protection means you or your heirs will never owe more than the home’s value. If the reverse mortgage balance exceeds the home’s value, your heirs may satisfy the loan by paying the lesser of the full loan balance or 95% of the home’s current appraised value, provided all HECM requirements are met.
Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold. Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.
To learn more, please visit the Consumer Financial Protection Bureau’s (CFPB) Reverse Mortgage: A Discussion Guide.
4. Refinance your loan
Another option to repay the loan is to refinance into another reverse mortgage. Depending on your circumstances, this may allow you to access more equity, adjust the loan terms, or add a spouse or other family member to the loan.
For example, if you took out a reverse mortgage several years ago when your spouse was too young to be on the loan, you might refinance to add them as a borrower. Or, if your home value has increased, you might refinance to access more equity. Note that refinancing does come with upfront and ongoing costs that increase the loan balance.
→ Learn more: Can you refinance a reverse mortgage?
5. Take out a new loan
Borrowers may also have the option to replace a reverse mortgage with a conventional forward mortgage if they qualify. Taking out a traditional mortgage allows you to repay the reverse mortgage, then you pay off the new traditional loan over time. While it can be an option for some borrowers, it’s often used by heirs or non-borrowing spouses who wish to keep the home after the death of the borrower.
You will have to meet all the credit and income requirements of a traditional mortgage, which may be challenging for retirees with limited income.
→ Learn more: Are heirs responsible for reverse mortgage debt?
6. Deed in lieu of foreclosure
A less-than-ideal option is deed in lieu of foreclosure, when you turn over the deed of the home in exchange for the lender not proceeding with foreclosure. This option results in you losing any remaining equity in the home and can have an impact on your credit. It may not be an option for all borrowers and can have a long-term impact on your finances, so speak to a financial advisor if you’re considering this option.
What happens if you can’t pay off your reverse mortgage?
If none of the options above work for your situation, the final path out of a reverse mortgage is foreclosure. If it comes to this, your home will be repossessed by the lender to satisfy the loan. While this is a potential outcome, there are borrower safeguards for HECMs, including for non-borrowing spouses. Most modern reverse mortgages also require a session with a HUD-certified counselor to ensure you understand how the loan works before closing.
Note that foreclosure is not the first step, but the final step in a much longer process. Lenders do not show up one day to take your home—there is a formal legal process that must be followed, which includes notification, a window to respond, and the ability to ask for an extension to satisfy the loan.
→ Learn more: Reverse mortgage foreclosure: How it happens and what to do next
Practical next steps with Finance of America
Like most financial products, reverse mortgages aren’t the right path for everyone. However, many Finance of America borrowers have shared that a reverse mortgage gave them additional financial flexibility as part of their retirement plan. If you’re an older homeowner with substantial home equity, learning more could help you determine whether it’s an option worth considering.
Use our reverse mortgage calculator to see how much cash you may be able to access with a reverse mortgage or read our guide What is a reverse mortgage and how does it work to learn more.
Frequently Asked Questions:
Can you get out of a reverse mortgage?
Yes. If your circumstances change, there are several ways to repay and end a reverse mortgage. The most common is selling the home and using the proceeds to satisfy the loan. Depending on your situation, you may also pay off the balance with other funds, refinance, or replace it with a traditional mortgage. If you’ve recently closed, the three-day right of rescission may also apply.
What happens to your reverse mortgage if you move into a nursing home?
Your reverse mortgage will likely become due and payable. Most reverse mortgages require the home to remain your primary residence, meaning you must live in it for at least six months each year. If you’re away due to medical issues, you generally must return to the home within 12 consecutive months to keep the loan in good standing.
What is the 95 rule for reverse mortgage?
The 95% rule is related to non-recourse protection and applies to FHA-insured HECMs. If the loan becomes due and the balance exceeds the home’s current market value, heirs may purchase the home or satisfy the reverse mortgage by paying 95% of the home’s current appraised value, even if the loan balance is higher.
What happens if you can’t pay back a reverse mortgage?
If a reverse mortgage comes due and the borrower or heirs can’t repay the loan, the home is generally sold to satisfy the loan. If you refuse to sell the home yourself, the lender may foreclose on the home.
How do I get out of an inherited reverse mortgage?
The simplest way to settle an inherited reverse mortgage is to sell the home and use the sale proceeds to repay the loan. If you want to keep the home, you may pay off the balance with other assets or refinance it into a traditional mortgage. Heirs do not inherit the reverse mortgage debt itself, but they do inherit a home with a lien that must be satisfied before they can keep or sell the property.
Can you sell a home with a reverse mortgage?
Yes, you retain ownership of your home and can sell at anytime. However, the loan balance will need to be satisfied by paying off the reverse mortgage at closing.
About the author
is the Web Content Manager at Finance of America and a journalist with more than 10 years of experience whose work has appeared in MoneyWise, MSN, Yahoo! Finance, and The Motley Fool. She specializes in making complex financial topics accessible and is passionate about advancing financial literacy.
Disclaimer
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor.
