What happens when a reverse mortgage is upside down? Read here to find out what will happen if your reverse mortgage becomes upside down!
One of the largest risks associated with taking out a reverse mortgage is that it could eventually grow to the point where the mortgage is upside down and you owe more than your home is worth. If you take out a reverse mortgage and it eventually becomes upside down, a few different situations could occur.
You Lose Your Home Equity
The first thing that happens when your reverse mortgage becomes upside down is that you will lose your home equity. A reverse mortgage is similar like any other mortgage loan in that it is a lien against your property. In the event that your home’s value decreases or that the interest accrues to the point where your mortgage is worth more than the home, you will have no remaining home equity.
You Won’t Be Able to Refinance
The second situation which could occur if your reverse mortgage becomes upside down is you won’t be able to refinance your mortgage. If your mortgage becomes upside down, you will not have enough equity remaining to refinance into either another reverse mortgage or a traditional mortgage.
Lender Will Take a Loss
The third situation which could occur if your reverse mortgage becomes upside down is that your lender will eventually take a loss. According to reverse mortgage loan documents, a borrower can never owe more on the mortgage than their home is worth. This means that if you sell your home, you will not be responsible for any shortfall. The same applies if you pass away and your heirs are forced to sell your home. In an event where there is a shortfall, the lender will have to take a loss on the loan.
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