Those who have a fixed rate will be able to slowly pay off the loan, as long as all prepayments made exceed the interest accruing each month. With a fixed rate, the interest rate on the loan will not change even if the national rate changes. Failure to keep up with these fees and maintenance may require the loan to be paid sooner.īorrowers interested in prepayments should also take note of their interest rates before proceeding. That being said, it is important to note that all HECM borrowers are also expected to continue paying their homeowners insurance, property taxes, and maintenance fees. Whether HECM borrowers choose to make prepayments or hold off until fees are due, the FHA required annual insurance premium protects them from paying more than their home value, even if the loan balance exceeds this amount. Deferring payments also provide borrowers with cash to use in the short term while other assets continue to grow. This may be the ideal route for borrowers who need the money in the short term for reasons such as paying down an existing mortgage or taking care of large medical bills. Unused funds in the line of credit will also grow over time.īorrowers can also avoid negative amortization by making monthly interest payments. On the other hand, if the loan has not been fully paid off when the borrower dies, the heirs are responsible for the remaining balance, regardless of their intentions to occupy the property.Īdditionally, making prepayments and paying down a reverse mortgage before it becomes due will open up a line of credit that the borrowers can draw from at their convenience with no withdraw fees or minimums. If the borrower is able to pay off the entire loan before it becomes due, their heirs will be left with little to no existing debt upon inheritance. Making these prepayments on a reverse mortgage can be extremely beneficial for the borrower’s heirs. Possibility of changes in the loan as time goes by.
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