A reverse mortgage can give retirees in Durango, Farmington, and the communities around them more breathing room. Sooner or later, though, most families ask the same question: how does this loan actually get paid back?
The short answer is that repayment happens later, not monthly. With a Home Equity Conversion Mortgage (HECM), the FHA-insured reverse mortgage most borrowers use, no monthly principal and interest payment is required while you live in the home as your primary residence and keep up with property taxes, homeowners insurance, and upkeep. The loan comes due when a specific event happens, and even then families have several options and real protections.
I work with reverse mortgage borrowers and their families on both sides of the state line, from Durango, Bayfield, and Pagosa Springs to Farmington, Aztec, and Bloomfield. Here is what I want every family in our area to understand before that day comes.
When Does a Reverse Mortgage Come Due?
A HECM becomes due and payable when the last surviving borrower:
- Passes away
- Sells the home or transfers the title
- Moves out permanently, including living in a care facility for more than 12 consecutive months
The loan can also come due if property taxes, homeowners insurance, or HOA dues go unpaid, or if the home falls into serious disrepair.
What this looks like in the Four Corners
- Moving closer to care. Many retirees in Southwest Colorado and Northwest New Mexico eventually move into assisted living locally or relocate to be near adult children out of state. Once that move becomes permanent, or a care facility stay passes the 12-month mark, the loan comes due.
- Keeping insurance in force. Homeowners insurance has become harder to find and more expensive in wildfire-prone parts of our region. A lapse in coverage is a loan default, so if your carrier drops you, call your servicer and shop for replacement coverage right away.
- Winters and upkeep. Roofs, decks, and wells take a beating at our elevation. Staying on top of maintenance protects the home's value, which also protects your family's equity.
- A spouse who is not on the loan. A spouse who was under 62 at closing may still be able to stay in the home after the borrower passes, as an eligible non-borrowing spouse, if they were identified at closing and meet HUD's requirements. Confirm this with your servicer now, not later.
Four Common Ways to Repay a Reverse Mortgage
1. Sell the home
This is the most common path. The sale proceeds pay off the loan balance, and any remaining equity goes to you or your estate. Depending on how long the loan has been in place and how values have moved in your neighborhood, there may be substantial equity left over. If the home sells for less than what is owed, FHA insurance covers the difference (more on that below).
2. Pay off the balance with other funds
Some borrowers or heirs use savings, life insurance proceeds, or other assets to pay off the loan. This can make sense when the goal is to keep the home without taking on a new mortgage.
3. Refinance or take out a new mortgage to keep the home
If the family wants to keep the house, a borrower, surviving spouse, or heir who qualifies can replace the reverse mortgage with a conventional, FHA, VA, or other loan. I am licensed in both Colorado and New Mexico, and licensing follows the property's location. That means I can help heirs keep a parent's home in Durango or Farmington even if the heirs themselves live in another state.
4. Deed in lieu of foreclosure, if needed
If no one wants to keep or sell the home, it can be signed over to the lender instead of going through foreclosure. This usually only makes sense when the home is worth less than the loan balance, because any equity is given up. Review it carefully before choosing this route.
Protections Every Heir Should Know About
You will never owe more than the home is worth
A HECM is a non-recourse loan. Neither the borrower nor the heirs will ever owe more than the home's value when the loan is repaid, and no other assets of the estate or the family can be pursued to cover a shortfall. FHA mortgage insurance absorbs any difference.
The 95% option
If the loan balance has grown larger than the home's current value, heirs who want to keep the home can pay off the loan for the lesser of the full balance or 95% of the home's appraised value.
How much time heirs have
Once the servicer learns the loan is due, it sends a due and payable notice. Heirs generally have 30 days to respond with their plan and about six months to sell or pay off the loan. When heirs are actively working on a sale or refinance, up to two 90-day extensions may be granted with HUD approval, for up to a year in total.
Interest keeps accruing during this period, so moving promptly preserves more equity. Most importantly, stay in contact with the servicer. Silence, not the loan itself, is what usually leads to foreclosure.
Colorado and New Mexico: Two States, Different Paperwork
Durango and Farmington are less than an hour apart, but they sit in different states, and that can change how heirs handle the home.
- Passing the home without probate. Both states allow a deed that transfers real estate at death outside of probate. Colorado calls it a beneficiary deed, and New Mexico calls it a transfer on death deed. When one is in place, heirs can often sell or refinance sooner.
- When probate is needed. If the home goes through probate, the court-appointed personal representative usually handles the sale or payoff. Letting the servicer know probate is underway helps support any extension request.
- Get local legal advice. I am not an attorney, and the right approach depends on your family's situation. A Colorado or New Mexico estate planning attorney can help you set things up so your heirs have a smoother path.
Can You Pay Off a Reverse Mortgage Early?
Yes. A HECM has no prepayment penalty, and you can pay it off in full or make partial payments at any time. Before paying it off, request an updated payoff statement from your servicer so you know the exact amount and timing.
Five Things to Do Now
- Keep your servicer's name and contact information where your family can find it.
- Tell your heirs the loan exists and where your loan documents are kept.
- If you have a spouse who is not on the loan, confirm their status with your servicer.
- Ask an estate planning attorney whether a beneficiary deed, transfer on death deed, or trust makes sense for you.
- Keep property taxes and homeowners insurance current, and keep up with maintenance.
Final Thoughts
Paying back a reverse mortgage does not have to be overwhelming. Whether the plan is to sell, refinance, pay off the balance, or help a parent's estate through the process, the key is knowing your options before a major life event forces a quick decision.
If you have a reverse mortgage, are considering one, or are an heir sorting out next steps for a parent's home in Durango, Farmington, or anywhere in the Four Corners, I am happy to walk through it with you. No pressure, just answers. Call or text (970) 403-5677 or email rchampion@barrettfinancial.com.