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Mortgage Loans and Loan Maturity Date
The maturity date on a mortgage refers to the end of your loan’s term. When applied to reverse mortgages, this is when your loan becomes due and payable. Certain events can trigger your reverse mortgage to mature and, as a result, funds will no longer be available for disbursement. If you’re considering a reverse mortgage, knowing what can cause the loan to mature is vital.
- Reverse mortgages don’t have a loan maturity date. For a reverse mortgage to mature, a maturity event has to occur.
- Maturity events can occur when a borrower passes away, sells the home, moves out of the home, or transfers their property’s title to another person.
- When a reverse mortgage matures, the borrower’s estate will be notified, and the repayment process will begin.
- Borrowers can use the amortization schedule to estimate how much will be due once their loan matures.
What is the maturity date on a loan?
There’s no specific due date on a reverse mortgage. Instead, the loan matures when specific events are triggered. Maturity events that are common to reverse mortgages include:
- The borrower (or last borrower in a joint reverse mortgage) passing away
- Selling the property
- Transferring the title to someone else
- Moving out of the home for more than 12 consecutive months
- Not paying property taxes or homeowners insurance
- Not maintaining the home
What happens when a reverse mortgage matures?
When a reverse mortgage reaches maturity, the loan becomes due and payable immediately and funds will no longer be disbursed. Once the loan servicer is notified of a mortgage maturity event, they’ll send a demand letter to the borrower’s estate within 30 days. The letter will contain essential mortgage law information, such as:
- Loan balance
- Options to pay back the reverse mortgage
- Number of days to respond
After the letter is received, the borrower’s estate will respond with how they wish to repay the loan. They can either use personal savings, sell the property, or purchase the home to keep for themselves to satisfy the debt. This must be done within six months.
What is an amortization period for reverse mortgages?
The amortization period for a reverse mortgage is a document that illustrates how your loan will change over time. Unlike traditional mortgages, the reverse mortgage is a negatively amortizing loan. In other words, it’ll grow instead of decrease. This is because reverse mortgages aren’t paid in full until they reach maturity, but interest still accrues. While monthly payments aren’t required, borrowers can choose to pay off their reverse mortgage early so the loan can amortize positively.
The reverse mortgage amortization schedule can help borrowers gauge how much will be due once the loan matures, allowing them to prepare their heirs for the future. The amortization schedule will include the following information:
- Number of years on the loan
- Interest rate
- Loan balance
- Home equity
Balloon repayments and reverse mortgages
Reverse mortgages require you to repay the loan in a single payment after a qualifying maturity event occurs. This is considered a balloon payment. However, as long as you don’t trigger a mortgage maturity event, you won’t have to pay the loan in full.
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