Being unable to pay off a reverse mortgage can be stressful since the consequences of foreclosure are serious. But fortunately, there are a few solutions available to solve this issue. The best solution is to either find other ways to pay off the mortgage or cancel it altogether.
If you cannot pay off a reverse mortgage, then the lender will most likely foreclose on your house. This means that the lender will take back possession of the house. You will also no longer have access to the house or any profits it makes once the lender sells it to someone else.
The following article is a more in-depth description of how to avoid foreclosure when you can no longer pay off your reverse mortgage balance. It also includes a brief explanation of how to get insurance for your reverse mortgage and how to cancel it and pursue other options.
How To Prevent Foreclosure
The most effective way to prevent foreclosure is to get an extension on paying off the mortgage. This way, you have more time to sell the home or save up enough money to get back on track with the payments or pay off the balance completely.
The only thing you have to do to get an extension and prevent foreclosure is contact your lender. Ask them to hold off on foreclosing the house and discuss options to catch up on the mortgage payments. The length of the extension will depend on the lender and how much you owe on the loan balance.
Other ways to prevent foreclosure on the house are to refinance it or get a Deed-in-Lieu of foreclosure. Refinancing your house means that you can use any equity on your home to pay off the mortgage payments. Equity refers to the difference between what you owe on your mortgage and what your home is currently worth. Refinancing can help you get this extra money and use it to pay off the mortgage.
Deed-in-Lieu of foreclosure refers to a voluntary transfer of property to the owner of your mortgage. You will then get a release from your reverse mortgage payment in exchange. This means you are no longer responsible for paying the reverse mortgage balance. Of course, it will mean you have to find somewhere else to live, but it will release you from the mortgage responsibilities.
Can I Get Insurance for my Reverse Mortgage?
Most, but not all, lenders require you to get reverse mortgage insurance before you apply for the mortgage. Having your mortgage insured means that you’ll receive certain payments as agreed upon by the terms set by your lender. You and your heirs will also never be responsible for paying more than your home is worth.
The main benefits of reverse mortgage insurance are guaranteed loan proceeds and non-recourse protection. The insurance will ensure that you, the borrower, will get all of the loan proceeds from the lender. This benefit is affected by the terms your lender set in your mortgage contract, but it’s an extra level of assurance that the lender will adhere to the agreement.
Non-recourse protection means that you or your heirs cannot owe the lender more than what your home is worth. It’s a protected way to save money and to make sure you get some benefits from selling the home. Reverse mortgage insurance is not required, but it is a good thing to have in case something goes wrong with the lender or the payments.
How To Cancel a Reverse Mortgage
The best way to cancel a reverse mortgage is to call your lender and go through the cancellation process. Then, the best option is to refinance the loan into a conventional mortgage.
Conventional mortgages are typically offered by:
- Mortgage companies
- Credit unions
They are similar to reverse mortgages in that they require frequent payments until the balance is fully paid. But they aren’t backed up or offered by a government organization. This allows for a little more flexibility in how you can pay off your mortgage.
Canceling a reverse mortgage and switching to this option can help you develop a payment plan that will work better for you. Whether it’s more time or paying an amount each payment cycle, conventional mortgages are the best option to go to after canceling a reverse mortgage.
When you cannot make the payments on a reverse mortgage, the consequences you are facing can be stressful. Fortunately, there are multiple good options to keep in mind if you are in this situation.
Preventing foreclosure using the options mentioned can help you gain more time to decide on canceling the loan or pursuing other options.