May 13, 2019
At the time you took it out, a reverse mortgage seemed like the perfect way to fund your financial goals. But perhaps circumstances have shifted or you’ve changed your mind. It’s not too late to back up (and out) before or after you sign your reverse mortgage paperwork.
Here’s how to get out of a reverse mortgage in three common scenarios.
There’s a time and a place to trust your gut’s nagging doubts. This is one of them. There are two important questions you should consider (or reconsider).
Nothing is final with a “cooling-off” period clause. Otherwise known as the right of rescission, this exit option gives homeowners three business days after signing the paperwork to reconsider without penalty, no questions asked. Make sure you didn’t inadvertently waive your right of rescission. In certain circumstances, such as if the property is in foreclosure, homeowners opt to waive their right to rescission to speed up the paperwork.
To opt out, put pen to paper. Your lender must receive your decision in writing within the permitted three days. Once the cancellation is set in motion, your lender must terminate the loan and return fees, closing costs, and any unused funds within 20 days.
It’s important to note that the three-day rescission doesn’t apply to a Home Equity Conversion Mortgage (HECM) for Purchase. This type of reverse mortgage, available to those 62 and older, allows homeowners to use the funds from a reverse mortgage to purchase a new home. Unfortunately, once you’ve signed the documents on a HECM for Purchase, the transaction is final.
After all is said and done, you still have options to exit a reverse mortgage.
The most expedient course of action is to repay the balance in full. The good news is reverse mortgages don’t typically have prepayment penalties. The not-so-good news is if you pay the loan back ASAP, you miss out on having that extra cash on hand.
Homeowners have the right and resources to change their minds. Exercise yours if that reverse mortgage—or lender—seems too good to be true. No matter what stage you’re at, there are options to exit a bad deal and get your financial situation back on a track that works for you.
While you can always talk with your lender about your options, you may also find it’s worth consulting an unbiased financial advisor who can listen to your needs and provide a course of action tailored to your current situation and end goal. You may find the upfront cost saves you money in the long run and prevents you from taking a financial misstep.
Hometap Note: The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.
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