If I take out a reverse mortgage loan, does the bank own my home?
No. When you take out a reverse mortgage loan, the title to your home remains with you. You must continue to pay for repairs, property insurance, and taxes.
When your move out, sell the home, or the last surviving borrower dies, you or your estate will need to repay the loan, typically by selling your house. The loan balance will include the amount you received in cash, plus the interest and fees that have been added to the loan balance each month. You or your heirs will pay off the loan using the proceeds from the sale, and keep the difference, if any.
Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. With an FHA-insured HECM loan, if the loan balance is more than your home is worth, you don’t have to pay the excess. You or your estate will typically sell the home, the lender will take the proceeds from the sale as payment on the loan, and the FHA insurance will cover any remaining loan balance.
If your heirs would like to keep the home, they will have to pay off the loan with cash or a new mortgage. If the loan balance is more than the house is worth, they will only have to pay 95% of the value of your home in order to pay off the loan, and the FHA insurance will cover the remaining loan balance.
If you are considering a proprietary (non-FHA-insured) reverse mortgage, make sure you understand what will happen if the loan balance is worth more than your home when you die or want to move.