Welcome back! In this post we will provide you with an overview of how HECMs can be refinanced or repaid.

Similar to traditional mortgages, a HECM borrower can repay all or a portion of the HECM principal amount at any time, and can refinance the HECM mortgage to a traditional mortgage, or refinance their existing HECM mortgage to another HECM mortgage.

Borrowers may consider a refinancing of a HECM mortgage to another HECM mortgage over time, for a variety of strategic reasons, including home price appreciation or an increase in the FHA mortgage limit providing for greater borrowing capacity over time, adding a spouse to the HECM mortgage, or taking advantage of any changes in the HECM program that enhance the ability of the borrower to utilize the HECM program for long-term retirement planning.

If the borrower chooses, any repayment of the HECM mortgage can be deferred until the last borrower or eligible non-borrowing spouse passes away, or moves or sells the home. Of course as we’ve noted in the past, this assumes that the borrower meets the terms of the obligations of the reverse mortgage until that time, including payment of property taxes, insurance and property maintenance.

A key point to remember is that the HECM mortgage is non-recourse to the borrower and their estate. The title remains with the borrower, and the borrower or the borrower’s heirs are able to make the decision, at the time repayment is required, whether to pay off, refinance or sell the home, or give the home to the lender, which may be the selected option if the amount owed under the reverse mortgage exceeds the fair market value of the home. Generally speaking, the borrower or the heirs also have up to one year to refinance or sell the property, with the reasonable cooperation of the lender.

To summarize, the HECM mortgage repayment and refinancing options are highly flexible, and given the non-recourse nature of the HECM mortgage, the borrower and their heirs will never owe repayment on the mortgage in an amount that is in excess of what the property can be sold for.

Thank you again for joining us, and we hope you find this series very helpful as you evaluate reverse mortgage options. Please contact us at any time with questions you may have and a discussion of how a reverse mortgage may be a fit for your individualized long-term retirement planning.

In our next installment of this series, we will go over HECM loan costs in detail.