If you choose to pay your reverse mortgage early, a prepayment charge may apply. Reverse mortgage penalties are not exactly straightforward so I thought It would be beneficial to write a post covering this topic.
As a general rule for smaller prepayments 10% of the amount owing can be paid once a year (provided the payment is made within 30 days of your anniversary date) without a prepayment charge.
Within the first three years of receiving your mortgage
If you pay off your reverse mortgage within the first three years of receiving the funds the prepayment charge is calculated as follows:
0 to 12 months ———————–> 5% of the amount you pay back
13 to 24 months ——————> 4% of the amount you pay back
25 to 36 months ————————> 3% of the amount you pay back
Death ————————————-> No prepayment charge
Moving to nursing home ——> Charge reduced by 50%
Please keep in mind that the reverse mortgage penalties listed above is only applicable to payments of more than 10% and outside 30 days of the anniversary date.
After 3 years of receiving your mortgage
3 months interest on the amount you pay back
Death ——————————–> No prepayment charge
Moving to a nursing home —————-> Charge reduced by 50%
To avoid all prepayment charges from a full payout of your reverse mortgage you need to wait 5 years from the initial advance and within 30 days following interest term.
If you need further calcification on reverse mortgage penalties please leave your questions in the comments section and we will reply, alternatively you can call or email us.