What Is a Maturity Event?
A maturity event is when something specific happens that triggers the repayment of a reverse mortgage. These types of loans only become due and payable under certain circumstances, such as when the borrower dies, sells or moves out of the home, transfers the property’s title to someone else, doesn’t keep up with tax and insurance payments, or refrains from keeping the home in a decent condition.
How a Maturity Event Works
Elderly homeowners in need of money have an option to convert part of their home equity into cash. With a reverse mortgage, the lender will advance you your home’s current value, minus any liens, as a lump sum, a line of credit, or a series of regular payments, meaning you can essentially borrow an amount equal to the portion of your home that you currently own.
The maturity event on a reverse mortgage is when the money the recipient was lent is due and payable. This won’t be a fixed date, such as June 8, 2050. Instead, it will occur when a triggering event happens.
- A maturity event is a specific situation that triggers a reverse mortgage to become due.
- There are seven situations that can trigger repayment of a reverse mortgage, from dying to not paying property taxes or insurance, or failing to keep up the property.
- There are three ways to deal with a maturity event.
- A lender will send a maturity event letter; it is important to respond to the letter promptly.
Maturity event triggers
Generally, the recipient of a reverse mortgage isn’t required to pay back the money for as long as they live in the home. Maturity events typically kick in on the following occasions:
- The borrower dies
- The property is sold
- The title or the home is transferred to someone else
- The borrower doesn’t live in the home for at least 12 consecutive months
- The home is no longer the borrower’s principal residence, meaning it’s not where they live for the majority of the year
- The borrower fails to keep up with property taxes and/or homeowners insurance payments
- The property is falling apart and the borrower is not getting it repaired
Homeowner's insurance is a compulsory requirement for reverse mortgages and failure to keep up with the premiums can trigger a maturity event.
How to respond to a maturity event
When the loan servicer is notified of a maturity event, it will send a letter to the borrower or their estate within 30 days. In this letter, the recipient will be informed that the loan balance must be repaid, be presented with options of how to do so, and be given a time frame within which to respond.
There are essentially three ways to deal with a maturity event.
- Find the money to pay off either the loan or 95% of the home’s appraisal value, whichever is less, and keep the property.
- Sell the property for at least 95% of its appraised value or the loan balance outstanding, with any excess funds yours to keep.
- Provide a deed in lieu of foreclosure, which basically gives the lender permission to sell the property, collect what’s owed and, if applicable, distribute any excess funds to the borrower or their heirs.
If the home is worth less than the amount owed on the loan, that’s OK—provided it is sold for at least 95% of its appraised value. What isn’t covered by the sale will be covered by the borrower’s mortgage insurance.
Special Considerations for a Maturity Event
Once the maturity event letter is sent, the clock starts ticking. Payment is due straight away, although the borrower or their heirs generally have six months to get their affairs in order and settle the debt.
Burying your head in the sand is not advisable. Interest, plus the premiums on the mortgage and homeowners insurance, will continue to accrue until the loan is paid, and missing the deadline means foreclosure and a higher chance of exiting the transaction empty-handed.
If the loan isn’t repaid by the deadline and no extensions are granted, the lender is required by the U.S. Department of Housing and Urban Development (HUD) to begin foreclosure proceedings to recoup what it’s owed.
To avoid any unnecessary headaches, it’s best to keep in regular contact with the servicer of the loan and inform it right away of any difficulties you may be facing. Communication could buy you more time and a bit more leniency.
When the letter is ignored and the deadlines aren’t respected, the foreclosure process will be initiated as soon as possible to recoup the funds owed. If you speak up, you may be given some wiggle room. A 90-day extension can be granted to those who ask for it and lenders are generally willing to show a little more patience if it’s clear that the recipient of the letter is actively seeking a solution.
Can a Reverse Mortgage Be Paid off Early?
Yes. A borrower can choose to pay off a reverse mortgage at any time.
Can Heirs Walk Away From a Reverse Mortgage?
Heirs can wash their hands of a reverse mortgage by providing the lender with a deed in lieu of foreclosure. Choose that option and they won’t need to find ways to raise the funds themselves, as the lender will take care of selling the house to cover the loan.
Taking that path will save the heirs time and hassle, but it could prove to be detrimental financially. If they were to sell the property themselves, they might get a better deal and pocket something extra.
Can You Sell a House That Has a Reverse Mortgage?
Absolutely. However, if you do sell the house, the reverse mortgage will become repayable, placing you on the hook to pay off the loan balance as well as any associated interest and fees.
Can My Heirs Inherit My Home if I Have a Reverse Mortgage on It?
It is possible for your heirs to keep the home, but to do so they must pay off the loan balance or pay 95% of the home’s appraised value, whichever is less.