Entering into a reverse mortgage is a big decision. It’s important to do your research and seek the advice of a financial advisor. One question that tends to be top of mind when entering into a reverse mortgage is whether you can reverse a reverse mortgage once papers are signed.
The answer is yes. Similar to a conventional forward mortgage, a reverse mortgage borrower has 3 days after signing the papers called “the right of rescission” to reverse their reverse mortgage.
A right of rescission1 is a right under federal law introduced by the Truth in Lending Act (TILA) to give borrowers the right to cancel a home equity loan, line of credit or reverse mortgage with a new lender, or cancel certain refinance transactions with another lender or the same lender within 3 days of closing. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising the right of rescission.
At Liberty Home Equity Solutions our experienced loan advisors take reverse mortgage education very seriously. It is important that along with the government-mandated reverse mortgage counseling session that every borrower must attend, our advisors also make sure that all interested seniors understand the Myths vs the Realities of a reverse mortgage. Even though the government-insured and regulated Home Equity Conversion Mortgage (HECM) or reverse mortgage has evolved into a safe mortgage loan for seniors it is critical that seniors are protected and have all the information they need in order to ensure that they are making sound and educated decisions about their future. Through the many safe-guards we take here at Liberty we feel confident that our customers are well-protected when choosing a reverse mortgage. The right of rescission provides an additional cooling off period so our customers know that if they need to they can reverse their reverse mortgage within 3 business days of their loan closing.
It is important to take note that not all reverse mortgage products are protected by a right of rescission. The right of rescission is limited to properties that are owner occupied. The HECM for Purchase which is a reverse mortgage that allows a customer to purchase a home and obtain a reverse mortgage in one transaction is not eligible for the right of rescission. With a HECM for Purchase, once the closing documents are signed and the funds have been sent, much like a conventional loan, the decision is final. The best way to stop a HECM for Purchase is to actually repay the loan balance in full. If the balance of the loan is quite large and you are not able to pay the loan balance off in cash, the next best alternative is to sell the home and use the proceeds to pay off the reverse mortgage or, refinance the loan into a conventional mortgage.
Entering into a reverse mortgage is a big decision and even though many borrowers do not use their right of rescission, it is a right available to eligible borrowers. Make sure that prior to making a decision regarding a reverse mortgage you properly educate yourself by attending a reverse mortgage counselling session, research information about reverse mortgages, and speak openly with one of our licensed loan advisors about any questions or concerns you may have.
1We want to make sure that you have the knowledge to feel confident when making a decision about a reverse mortgage.