Reversing a Reverse Mortgage: Can I Exit the Loan?

For many senior homeowners interested in accessing their home equity, the reverse mortgage loan is a choice that is often made with confidence.  After all, this financial product gives them the chance to convert a portion of their home equity into cash to supplement their retirement income. For a decision as important as a home equity loan, borrowers take the time to do their research about the product, speak with their reverse mortgage professional about their concerns, and review their finances to be sure that this loan is right for them.

However, for even the most decisive of borrowers, there’s peace of mind knowing that you can change your mind.  Because of this, a question that potential borrowers sometimes ask is, “Can I get out of a reverse mortgage?

The Right of Rescission

The great news is the answer is yes.  Most reverse mortgage loans come with a period called “the right of rescission,” similar to a “cooling off period.”  This cancellation right provides borrowers three business days after signing their reverse mortgage closing paperwork to change their mind and cancel the transaction with no questions asked and no penalty fees charged.

If a borrower chooses to change their mind about a reverse mortgage, they only have to alert their lender in writing within the allowable three business days from signing.  The lender must then cancel all loan documents and return all fees, closing costs, and unused funds paid by the consumer within 20 days.

It is not common for borrowers to use their right of rescission.  In addition to the government-mandated reverse mortgage counseling session every borrower attends, American Advisors Group reverse mortgage professionals do everything they can to inform interested seniors on both the pros and the cons of reverse mortgages, in order to ensure that consumers are making an educated decision.  The government-insured and regulated Home Equity Conversion Mortgage (HECM) reverse mortgage itself has developed into a safe mortgage loan for seniors, so they can enter into this loan with confidence.  Even though consumers are well-protected when choosing a reverse mortgage loan, the 3-day right of rescission is available; a safeguard that helps give borrowers additional peace of mind.

HECM for Purchase

Keep in mind, however, that this information on how to get out of a reverse mortgage does not apply to all reverse mortgage transactions, as it is only limited to properties that are already owner occupied. Thus, the HECM for Purchase, which is the reverse mortgage version that allows you to both buy a new home and obtain a reverse mortgage in one transaction, is not eligible for rescission. Once closing documents are signed and funds have been sent, the decision is final.

How to Reverse a Reverse Mortgage

So then, how do you get out of a reverse mortgage if you have a HECM for Purchase or you have already passed the 3-day rescission period on a normal reverse mortgage loan?  The best way of getting out of a reverse mortgage is by repaying the loan balance in full.  If you have a large balance that you are unable to pay in cash, the most common solution is to sell the home and use the proceeds to pay off the reverse mortgage.  Another option is to refinance the loan into a conventional mortgage.

Moving forward with any home equity loan is no small decision. And although it is uncommon for reverse mortgage borrowers to utilize their right of rescission, it is normal for borrowers to feel some anxiety when moving through the process. Fortunately, all of the reverse mortgage information you need to put your mind at ease is freely available for you to take advantage of in a number of ways. You can properly educate yourself by requesting free information online, attending a reverse mortgage counseling session, conducting your own research on the reverse mortgage facts, as well as speaking honestly with a licensed reverse mortgage professional about your questions and concerns. Armed with this knowledge, by loan closing you will feel confident whether you are making the right choice for your financial future.

Sources:

“Right of Rescission.”  TheTruthAboutMortgage.com.  NP.  ND.  Web.  23 June 2015.  http://www.thetruthaboutmortgage.com/right-of-rescission/

“Reverse Mortgage Right of Rescission.”  ReverseMortgage.net.  NP. ND.  Web.  22 June 2015.  http://finance.zacks.com/much-equity-need-reverse-mortgage-6367.html

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