Reverse mortgages can provide cash for seniors whose net worth is mostly tied up in the value of their home. A reverse mortgage is a loan for homeowners who are age 62 or older and have considerable home equity. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.
You can only have one reverse mortgage at a time, and it must be taken out against your primary residence. This is somewhat loosely defined, but it’s generally taken to mean that you must live at the address for at least six months of the year. If you have to spend time in a healthcare facility, the rules are slightly more lenient—in this case, you can be away from home for up to 12 consecutive months before your reverse mortgage becomes due.
It’s important to understand these rules, because a prolonged absence from your home could mean that your reverse mortgage becomes due, and that you are forced to sell your house to pay it back. In this article, we’ll take you through what you need to know.
There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). The HECM represents almost all of the reverse mortgages that lenders offer on homes valued below $970,800, so that’s the type that this article will discuss. If your home is worth more, however, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.
- Reverse mortgages can only be taken out on your primary residence—generally understood to mean that you must live at the property for most of the year.
- If you are away for more than six months for a vacation, or more than 12 consecutive months for medical reasons, then your lender has the right to terminate your loan.
- Inform your lender if you are planning a lengthy vacation or have to spend extended time in a healthcare facility. Otherwise, they may assume that you have moved away and close your reverse mortgage loan.
Understanding Residency Rules for Reverse Mortgages
The rules for reverse mortgages state that the property on which you have the reverse mortgage must be your principal residence, meaning that it must be where you spend the majority of the year. The rules also state that you can only have one principal residence at a time.
However, the rules don’t specify how long a borrower can be away from the property before a lender can call in the reverse mortgage loan. In other words, the exact amount of time that you can be away from home before it triggers the end of your reverse mortgage is at the discretion of your lender.
Your lender may have specific, detailed rules on how long you can be away from your home before they can call your reverse mortgage due. However, the Consumer Financial Protection Bureau (CFPB) has also produced general guidance on this question. Here are those recommendations:
- If you are away for more than two months but less than six months, you should notify your lender so that they know that you continue to live at your principal residence. Doing this can help you to avoid issues with the reverse mortgage residency rules.
- If you are away from a property for more than six months for nonmedical reasons, you can no longer claim it as your principal residence. This will trigger your reverse mortgage to become due.
- If you are away for more than 12 consecutive months in a healthcare facility such as a hospital, rehabilitation center, nursing home, or assisted living facility and there is no co-borrower living in your home, you also will be regarded as having left your principal residence. This also means that your reverse mortgage loan becomes due.
The rules are slightly different if a co-borrower lives in the home. Many couples add both spouses to the reverse mortgage documents as co-borrowers. Doing this can help you to avoid problems. As long as one co-borrower continues to live in your principal residence and continues to fulfill the reverse mortgage requirements, they are allowed to do so (and receive loan payments), even if you leave the property permanently.
If you live with your spouse (or other family age 62 or older), make sure that you add them as co-borrowers when you take out a reverse mortgage. This means that you will not be forced to sell your house if one of you has to move to a healthcare facility for more than 12 consecutive months.
Some borrowers experience issues with their reverse mortgage during an extended absence from home, for either a vacation or medical reasons.
For example, say a couple lives in a home together but only one person is listed on the reverse mortgage documents. If this person must go to a hospital (or a nursing home) for more than 12 consecutive months, then the loan will become due. This can mean that their spouse has to leave the house and sell it to satisfy the outstanding debt. To avoid this issue, it’s important to add your spouse to your reverse mortgage when you take it out.
Another common issue stems from the requirement to prove that you live in your principal residence for most of the year. Most lenders will require you to certify each year that your home is your principal residence. This is usually done through a postcard or other notice sent by mail at the same time each year. It is important that you sign and return your annual occupancy certification immediately. If you do not, your lender may think that you’ve moved away and may even start foreclosure proceedings on your home.
Must a reverse mortgage be on a primary residence?
Yes. Reverse mortgage loans can be made only for primary residences—generally understood to mean the property where you spend the majority of the year. Reverse mortgages require the borrower to use the property as the primary residence for the lifetime of the loan.
How long can I be away from home with a reverse mortgage?
The rules state that you must live at a property for the majority of the year for it to qualify as your principal residence. This means that you can’t be away for more than six months at a time for nonmedical reasons. If you have to go to a hospital (or other healthcare facility), you can be away from home for up to 12 consecutive months before the loan becomes due.
Can I move from a house with a reverse mortgage?
If you move from house with a reverse mortgage, then your loan will become due. This means that you must pay back the balance of your loan—through either selling your house or raising funds in some other way.
The Bottom Line
Reverse mortgages can be taken out only on your primary residence. Though the decision to end your reverse mortgage loan is entirely at the discretion of your lender, this is generally understood to mean that you must live at the property for the majority of a given year.
This means that if you are away for more than six months for a vacation, or more than 12 consecutive months for medical reasons, then your lender has the right to terminate your loan. If you are planning a lengthy vacation, or if you have to spend an extended time in a healthcare facility, you should inform your lender of this. Otherwise, they may assume that you have moved away and close your reverse mortgage loan.