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Dreaming of shedding years off your mortgage and saving a ton on interest? You’re not alone. From millennials and Gen Z to those who are preparing to retire, many homeowners are prioritizing early mortgage payoff. Here we’ll explore powerful techniques to pay off a mortgage early like biweekly payments, lump sum payments, and even the potential of mortgage refinance. We’ll answer all your burning questions, like “Is it really better to pay off my mortgage early or invest?” Let’s unveil the best ways to pay off your mortgage early and help you craft a personalized plan for financial freedom.

Why Pay Down your Mortgage Faster?

Now that you’re a homeowner, you aren’t paying your landlord’s mortgage and instead you’re building equity in your own place. Now picture yourself with that same home and free from a monthly mortgage payment, with the financial freedom to invest, travel, retire, or just breathe a little easier. That’s the magic of early payoff.

What are some advantages to paying off your mortgage early?

Save Money on Interest: The longer it takes to pay off a loan, the more interest is paid over that time. Early payoff can mean tens or even hundreds of thousands saved in the long run (depending on loan size).
Fast-Track to Financial Freedom: Being mortgage-free means a significant chunk of your income is freed up. Depending on your investment strategy, this could allow you to invest more aggressively, save additional money for retirement sooner, or simply enjoy a more comfortable lifestyle.
Tap Into your Home Equity: A larger dent in your mortgage balance increases your equity. Your home’s equity can be a valuable resource for unexpected expenses or home improvements.
Peace of Mind, Priceless: There’s a priceless serenity that comes with knowing your home is truly yours, with no monthly payment hanging over your head.

What is the Best Way to Pay Off Your Mortgage Early?

There’s no one-size-fits-all approach to early mortgage payoff. The ideal strategy depends on your financial situation, risk tolerance, and long-term goals. Consider these factors when creating your plan:

Current Financial Situation: Analyze your income, expenses, and existing debt to determine how much extra you can comfortably allocate towards your mortgage.
Risk Tolerance: Are you comfortable with a potentially tighter budget in exchange for faster payoff?
Long-Term Goals: Do you prioritize early financial freedom or are there other financial goals you want to focus on?

Once you’ve considered these factors, you can choose the strategies that best suit you.

Understanding Principal Vs. Interest

Before we delve into specific strategies, let’s solidify the role of interest vs principal in your mortgage payment. This is key to maximizing your payoff efforts.

Interest: The fee you pay for borrowing money (expressed as APR).
Principal: This is the actual amount of money you borrowed for your mortgage to purchase the home.
Amortization: The calculation of how your loan is paid down over a specific amount of time when regular payments are made.

Note: There are other costs added to your total monthly mortgage payment (local property taxes, homeowners insurance, HOA fees, etc.), but we’re only discussing principal and interest right now.

Every monthly payment is divided between interest and principal. In the early years of your loan, a larger chunk goes towards interest, with a smaller amount chipping away at your principal balance.

Example: For simplicity, let’s imagine your monthly Principal and Interest (P&I) payment is $1,000. Every loan is amortized over time, meaning monthly payments are split between principal and interest, reducing the loan balance over the span of your loan term. In the beginning, maybe $700 goes to interest and only $300 reduces your loan amount. The next month, your overall principal is reduced by $300 and the interest is now calculated upon your new, lower balance. That’s why early payoff is so powerful – it allows you to pay down the principal faster, reducing the overall interest you pay over time.

Related: Take a look at our amortization calculator.

Strategies for Early Mortgage Payoff

Pro Tip: Before changing your payment strategy, confirm if your mortgage servicer allows extra principal payments without penalties.

Alright, now that you’re armed with that knowledge, let’s explore some strategies to conquer your early mortgage pay-off strategy. Get ready, these may surprise you!

The Biweekly Mortgage Payment:

One popular way that some homeowners pay down their principal more quickly is to make biweekly payments. Instead of paying one monthly payment, you pay half the payment every 2 weeks.

Here’s a simple example to show the power of a biweekly payment. Let’s say you have a home loan for $400,000 with a 7% interest rate on a 30-year mortgage. In the example below you would pay $139,850.33 less in interest over the life of the loan with biweekly mortgage payments than if you made standard monthly payments!

There are online calculators available to determine these payments, or we can talk and run the numbers for you!

How Does a Biweekly Mortgage Payment Work?

Because a year has 52 weeks, this works out to 26 biweekly payments. This essentially allows you to make 13 full payments a year instead of 12. That one extra payment really compounds over time! When you pay your principal balance down faster, there’s less money to charge interest on, which lowers the amount of overall interest paid.

Make an Additional Principal Payment

Similar to biweekly payments, you can make an extra payment towards the principal each month. Even a small amount can make a big difference over time. Let’s revisit our example: $400,000 loan at 7% interest with a 30-year loan term. If you consistently put an extra $500 towards the principal each month, you could save a significant amount of money on interest payments in the long run.

There are online calculators available to determine these payments, or we can chat and run the numbers for you!

Important! Be sure to clearly communicate to your lender that any extra payments should be applied to the principal, not interest.

Rounding Up: Small Change, Big Impact

Don’t underestimate the power of small changes. Consider rounding up your monthly payment to the nearest hundred and applying the difference towards the principal. This might seem insignificant, but over the years, it can make a dent in your loan amount.

For example, rounding up a $1,950 payment to $2,000 translates to an extra $50 towards the principal each month. Over a 30-year loan term, that’s a total of an extra $18,000 you’ve put towards your loan principal and $18,000 less that interest has had to compound on!

Windfall Warrior:

Tax refunds, bonuses, or unexpected financial windfalls can be powerful tools for early mortgage payoff. Instead of spending them all, consider putting all or part of that money towards a lump sum payment on your mortgage principal.

Let’s say you receive a hefty $5,000 tax refund. Putting that entire amount towards your principal can significantly decrease your loan balance, reducing your future interest payments.

More Early Payoff Strategies for the Ambitious Homeowner

Should I Refinance My Mortgage to Pay it Off Faster?

Refinancing your mortgage can be a strategic move for early payoff. It involves replacing your existing loan with a new one, typically with a shorter term (like a 15-year loan) and ideally a lower interest rate. For example, if you were to refinance and get a 2% lower interest rate, you could save thousands of dollars on interest over the life of the loan.

Another benefit of a shorter loan term: With a 15-year loan, you’ll be putting more money towards your principal balance each month. This allows you to pay off your house much faster and save on overall interest costs. While your monthly payment will increase because the loan term is shorter, it won’t double (which is a common misconception with shorter term mortgages).

Important to consider: There are closing costs associated with refinancing a mortgage. These upfront fees can be significant. Let’s discuss this to make sure the long-term savings from a lower interest rate outweigh the upfront costs of refinancing.

Purchasing with a 15-Year Fixed-Rate Mortgage Option:

If it fits well into your budget, a 15-year fixed-rate mortgage might be an option when purchasing a new home. While the monthly payments will be higher than a 30-year loan, you’ll build equity much faster and save a ton on interest in the long run. Let’s discuss your options and we can give you advice on what would be best for you with your personal budget and finances.

Related: Check out our calculator to compare 2 mortgage options!

Should I pay off my mortgage early or Invest?

It might not all be about “can I pay down my mortgage early?”, a better question might be “should I?”

Cash Flow Flexibility: Putting extra money towards your mortgage might mean tightening your belt in other areas. Make sure you have a solid budget and an emergency fund saved up before diving in. Financial experts recommend 3-6 months’ worth of your expenses set aside for an emergency.
Investment Opportunities: The money you put towards early payoff could potentially generate a higher return if invested elsewhere. However, the stock market has inherent risks, while paying off your mortgage guarantees a return in the form of saved interest. Let’s discuss this and talk with your financial advisor to discuss where your bucks will make the most bang!

Ultimately, the decision depends on your financial goals and risk tolerance, but it is important to know all of your options!

Own Your Future, One Payment at a Time

Remember, paying off your mortgage early is a marathon, not a sprint. Be patient, stay disciplined, and celebrate your milestones along the way.

Let’s talk! We can run all kinds of scenarios for you on your current and potential mortgage options. We’ll see how funds can be allocated and the long-term impact of those choices. We’d love to help you calculate your individual situation!

NFM Lending is not a Financial Advisor, Tax Advisor or Credit Repair Company. You should consult with a Financial Advisor, Tax Advisor or Credit Repair Company to learn more. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

Tax Day has come and gone, but while tax season isn’t on most people’s list of “favorite day of the year”, there’s a light at the end of the tunnel: your tax refund! The average refund in 2023 was $2,753, and with that kind of windfall, a tropical getaway might seem tempting. But before you jump on a plane, let’s explore how you can leverage your tax refund. A down payment for a first-time homebuyer, or long-term goals like financial freedom and building generational wealth!

Can I Use my Tax Refund for a Down Payment?

Are you dreaming of homeownership? Using your tax refund for a home purchase could lead to several advantages when owning your first home! Here are some benefits to a larger down payment on your loan:

Lower Interest Rate: A larger down payment can qualify a first-time homebuyer for a more favorable interest rate on your mortgage.
Smoother Pre-Approval Process: A bigger down payment strengthens your financial standing. With less “risk” for a lender to consider, this can make the pre-approval process smoother.
Avoiding PMI: With a down payment of at least 20% of the home’s value, you will avoid private mortgage insurance (PMI), which adds to your monthly mortgage payment.
Lower monthly payment: This one might be a no-brainer, but a larger down payment means a smaller loan amount. Smaller loan amount equals smaller monthly payment!

Related: Down-payment assistance programs can help first-time homebuyers get started and increase your down payment!

How Much do I Need for a Down Payment on my First Home?

Down payment requirements vary by the type of loan you want to have. Lower down payment doesn’t always mean a better loan program; there are multiple different factors to decide which loan program is right for you. The best mortgage for a first-time homebuyer is the loan that you’re most qualified for. That will depend on several factors, including your debt-to-income ratio, credit score, and yes…down payment.

We take all of these factors into consideration and help you strategize between your options and choose the right one to fit your current and future goals.

Mortgage Types and Minimum Down Payments

Related: Check out our mortgage calculators to do the down payment math yourself!

It’s easy to see how a first-time homebuyer can use a tax refund for a down payment and boost their homebuying strategy, but what about people that already own a home? Other than using the funds for home renovations, how can you use your refund to set yourself up for a better future?

Can I Pay Down Principal or Refi with a Tax refund?

We understand the allure of a vacation, but here’s the thing: by putting your tax refund towards your mortgage, you’re essentially doing two things at once: saving money on interest payments in the long run and building equity in your home faster.

Your tax refund may also be able to help you pay fees associated with refinancing to save you money by:

Lowering your interest rate
Shortening your loan term (from 30yr to 15yr)
Removing private mortgage insurance (PMI) that may have been required if your down payment wasn’t 20% or more of the cost of your home.

If you’ve decided to use your tax refund on your existing mortgage, there are a few ways to go about it:

1. Applying Tax Refund to Principal

A lump-sum payment directly to your principal balance shortens your loan term, builds equity, and ultimately saves you on interest. The more you pay down the principal, the more interest you save.

Keep in mind:

Ensure the payment goes towards your principal, not just a regular payment (principal + interest).
Check for prepayment penalties – some mortgages have them for early large payments. Review your loan terms and talk to your lender if needed.
Some lenders might offer “loan recasting,” which recalculates your remaining loan term with the lower principal balance, potentially reducing your monthly payments.

If you’re looking for options to lower your monthly payments specifically, refinancing might be a good fit if rates have lowered since you first bought your home.

2. Using a Tax Refund for Refinancing Fees

Refinancing your mortgage means replacing your existing loan with a new one, potentially with a lower interest rate, better terms, or you could take cash out for projects or major life changes. Here’s where your tax refund can come in handy – it can help cover the refinancing fees, including closing costs and appraisals.

Is refinancing a good option for me?

Lower Interest Rates: Perhaps interest rates have dropped since you first took out your mortgage, offering an opportunity to save.
Improved Credit Score: If your credit score has improved significantly since the last time you bought a home, you might qualify for a lower interest rate.
Debt Reduction: Have you paid off other debts since buying your home? A lower debt-to-income ratio can improve your eligibility for a better interest rate.

How much does a refinance cost?

While refinancing can save you money in the long run, there are upfront costs involved that you should consider. The Mortgage Reports estimates closing costs to range between 2-6% of your loan amount.

Here are some situations where refinancing might not be the best move for you:

Recently Closed Loan: Many lenders and loan programs have restrictions on how soon you can refinance after taking out a new mortgage. For almost everyone, you’ll want to wait 180 days before refinancing after your most recent loan began.
Minimal Interest Rate Drop: Aim for a rate reduction of at least 1.5-2% to make the refinancing process worthwhile compared to the cost.
Short-Term Ownership: If you plan to sell your home soon, refinancing might not make financial sense.
Longer Loan Term: Since a refinance is a new loan on the same property, you’ll be starting your loan term over again. A longer loan term might seem appealing for lower monthly payments, but it ultimately means paying more interest overall.

Not sure if refinancing is right for you? That’s why we’re here! Our team can do a complete cost analysis for you before you start the process, making sure you’re confident in your decision before taking the first step.

Boost Next Year’s Tax Refund

Let’s say your tax refund this year wasn’t quite enough to make a huge dent on your homeownership goals today. Don’t worry, there are still ways to optimize your tax situation for next year’s return, potentially putting more money back in your pocket to fuel your homeownership dreams.

Here are some key strategies to consider:

Tax Credits for Homeowners

Mortgage Credit Certificates (MCCs): These state-issued tax credits can be a game-changer, allowing you to claim a portion of your annual mortgage interest as a federal tax credit, effectively lowering your monthly payments.

Reach out to us to learn more about MCCs and eligibility requirements in your area!

Homeownership Tax Deductions

Mortgage Interest: You can typically deduct your mortgage interest payments up to a certain limit depending on your loan amount and filing status.
Mortgage Points: If you paid upfront points to lower your interest rate, you might be able to deduct them as well, subject to specific IRS qualifications.
Property Taxes: The property taxes you pay on your home are generally deductible. If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet.
Home Office Expenses: If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet.
Find out more here: The IRS published a great resource for homeowners in 2023 regarding what you can and cannot deduct, MCC credit and other information.

Keeping good records of your mortgage-related expenses is crucial. This includes your loan documents, receipts for points paid, and documentation of any home improvements you make.

It’s important to note that tax laws can be complex, and eligibility for deductions and credits can vary depending on your specific circumstances. Consulting with a tax professional is always recommended to ensure you’re taking advantage of all the benefits available to you and remaining compliant with federal tax law. We can help you explore these options, or get you in contact with a great Tax Advisor.

In Conclusion

By implementing these strategies and working with a trusted loan officer, you can turn your tax refund into a springboard for achieving your homeownership dreams. We’re here to guide you through every step of the journey, from maximizing your tax refund to navigating the mortgage process.

Get a no-cost pre-approval and explore down payment options for first-time homebuyers – click the Apply Now button above!

* NFM Lending is not a Financial Advisor, Tax Advisor or Credit Repair Company. You should consult with a Financial Advisor, Tax Advisor or Credit Repair Company to learn more. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal.

The federal government recently passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to assist Americans during the COVID-19 pandemic. The new law includes provisions for homeowners, one of which requires loan servicers to offer mortgage forbearance. There are several misconceptions about this relief service. If you’re considering this option for yourself and your family, this is what you need to know about mortgage forbearance.

What is mortgage forbearance?

First and foremost, mortgage forbearance is NOT mortgage forgiveness. Forbearance means that your loan payments will be deferred for a certain period of time, after which you will be responsible for those payments. According to the CARES Act, your loan will accrue interest during forbearance, but it will not be subject to additional interest or fees. Some loan servicers may request multiple months’ worth of payments at the end of forbearance, so you need to contact your lender to understand their repayment terms. The CARES Act stipulates an initial forbearance period for federally backed loans of 180 days, with an extension of 180 days if requested by the borrower. Forbearance is essentially a grace period where your payments will not be due monthly in order to provide immediate relief.

Am I eligible for mortgage forbearance?

The government’s forbearance program covers mortgages backed by federally sponsored agencies: Fannie Mae and Freddie Mac. Your loan servicer may have their own forbearance options if you did not get your mortgage through a federal program. If you’re interested in mortgage forbearance, you need to contact your loan servicer to see if you qualify and what their terms of repayment are. Call the number located on your monthly mortgage statements to reach your servicer.

What does this mean for me?

As mentioned in the CARES Act, your credit score should not be affected during forbearance, nor will you be charged any late fees. However, there is uncertainty around this topic and we’ll update this page as we get more information. One thing to be aware of is that your account will maintain the status it was in when it went into forbearance (i.e. current, delinquent, etc.) while in forbearance. If possible, be sure your account is current before going into forbearance. If you anticipate you will need more time in forbearance, reach out to your loan servicer before your initial term ends to ask what options are available. Understand that if you’re still able to make monthly mortgage payments, you should continue to make them.

This is a very uncertain and even stressful time for many homeowners, therefore it’s even more important to do your research before you sign up for any relief program. Make sure you have a thorough understanding of your loan servicer’s conditions so you won’t encounter any unpleasant surprises down the road.

If you are a homeowner, you may have considered refinancing your current mortgage. Refinancing can offer many advantages to help you meet your financial goals. If you are just starting to look into refinancing, or have been thinking about it for a while, here are three benefits that you should consider.

It may be possible to obtain a lower interest rate by refinancing your current mortgage loan.* A lower interest rate means that your monthly mortgage payments would be lower. This could save you money monthly or you could make payments directly to the principal of your loan, allowing you to build your home equity quicker and reducing your interest. A lower interest rate is the most popular reason that homeowners choose to refinance.

You can take advantage of the equity you have built in your home with a cash-out refinance. To take advantage of this, you would refinance your current mortgage for more than the amount you owe, and keep the extra money. For example, if you owe $150,000 on a home worth $250,000, you have $100,000 worth of equity in your home. You could refinance your home for $175,000, and receive a check for the $25,000 difference. You could use this money for home improvements and remodeling, or any other household needs you may have.

Another refinancing option is to shorten your loan term, so you pay your home off in less time. For example, you might switch from a 30-year loan to a 20-year loan. This would allow you to build equity faster, and pay off your loan in less time, with the same (or marginally higher) monthly payments. If you have an adjustable-rate or interest-only loan, you may be able to refinance to a fixed-rate loan product that may save you money over the life of your loan, and may allow you to build equity.

Whether you want to lower your monthly payment, build equity, or get cash for projects, refinancing can be a step towards meeting your financial goals. To find out if refinancing is right for you, talk to one of our licensed Mortgage Loan Originators today!

*Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

What Is Refinancing?

Refinancing is when you get a new mortgage to replace your existing mortgage. Most of the time, people refinance their mortgage when they are looking to reduce their monthly payments using the equity on their home (the difference between the amount owed and how much the home is currently worth).* Other reasons include changing from an adjustable-rate to a fixed-rate mortgage; avoiding balloon payments; cashing out to consolidate debt; consolidating a mortgage and a home equity line of credit; and even addressing family matters such as divorce. When you refinance, your first loan is paid off allowing the new mortgage to be created and placed as a first lien on the property.

Is Refinancing Right For Me?

If you think refinancing your home loan is something you might be interested in, ask yourself the following questions to see if refinancing is a good option for you:

– How long do I plan to stay in my current home?
– How much do I owe on my home?
– What is my interest rate and what are the current interest rates available?
– Can I afford to pay the costs associated with refinancing?
– Why do I want to refinance?

Once you have asked these questions, it’s time to assess your situation. You must check your equity, debt, and available cash, as these 3 items can greatly impact your ability to refinance your home. Here are the reasons why these 3 items are often problems for homeowners who wish to refinance:

When and How to Refinance

Ideally, you only want to refinance your current loan once. Usually, you have to plan to be in your house for a while for refinancing to make sense. You also have to figure out where you stand with your current mortgage and investigate whether or not your loan has a prepayment penalty (where you are charged a fee when you pay off your mortgage early). Furthermore, consider how long it will take you to recoup the closing costs of the new mortgage. Even though you will be making lower payments, extending your mortgage term can wind up costing you more in the long run. Make sure the timing and circumstances allow this to be the right time to refinance your mortgage.

Throughout its course of existence, a loan takes on various forms of being: application, amortization, re-finance, maturity. It could stay in the lender’s portfolio for its duration or move into the exciting world of the secondary market. It may split off into two loans if the borrower decides to obtain a home equity line of credit (HELOC) or a second mortgage. A loan could even pay money to its borrower in the form of a reverse mortgage!

Application and Origination

A loan comes to life when a borrower decides they want to purchase a piece of real estate and obtain a mortgage loan or they want to re-finance their current mortgage. A borrower may apply for pre-approval of a loan to help determine what they can afford.

Once someone finds a piece of property they wish to purchase, they may officially apply for a loan. Even though the borrower may have already applied for pre-approval, it is not a guarantee, so they must apply again. To apply, the borrower must submit the names, social security numbers, and the monthly income of all applicants, the subject property address, and the estimated value of the property being bought or refinanced. During the application process, the amount of the loan and the down payment are determined by the borrower. At this point, the lender determines if the individual is able to qualify for a loan amount.

A loan officer takes the borrower’s application and collects the items needed for review. Here is a list of items a borrower should be prepared to submit to their loan officer:

The loan processor puts all these items together, orders a title, helps schedule an appraiser to determine the value of the property, and then sends the application to underwriting.

In the underwriting process, the lender determines the degree of risk involved with lending the borrower money. Here are the “three C’s” that are evaluated in underwriting:

Credit: A credit report is obtained from each of the three credit bureaus—Equifax, Transunion, and Experion. These reports are analyzed to determine how well a borrower manages debt.

Capacity: Capacity is a borrower’s ability to make payments on the loan. The borrower’s employment and income is evaluated along with their current debt and assets (debt-to-income ratio).

Collateral: When looking at collateral, the lender evaluates the type of property, value of the property, and cost. To determine the value of a piece of property, an appraiser is sent to analyze various factors.

Once the underwriter grants approval, a clear to close is processed and the settlement date can be scheduled.

Closing

The closing on a loan is where all the necessary paperwork is presented and signed. At closing, the title of the property is transferred to the buyer, an escrow account is set up, the amortization schedule is issued, funds are obtained by the borrower, and the security interest of the lender has been recorded by the County or City Clerk.

Once a loan is closed, it splits onto two different paths: the lender’s path and the borrower’s path.

On the lending side, a mortgage loan can either remain in a lender’s portfolio or enter the secondary market. In the secondary market, loans are sold by lending institutions to private and public investors such as Fannie Mae and Freddie Mac to be sold as mortgage backed securities. The secondary market allows lenders to replenish cash reserves so that they can originate more mortgages to consumers.

From a borrower’s perspective, after closing the borrower then makes payments on the loan following an amortization schedule. By refinancing or taking out a Home Equity Loan or Line of Credit, the loan can be modified at a later date depending on the borrower’s future financial needs.

Refinancing

Interest rates are currently at historic lows in which people with existing mortgages may want to take advantage of. By refinancing, a borrower can reduce their monthly payments as well. Or a homeowner may also desire a large amount of cash for home or remodeling for safety reasons (only available if borrower is occupying the property). For these and other reasons, the option to refinance a mortgage is often available.

Second Mortgage/Home Equity Loan/HELOC

If someone is in need of a large sum of money, they may consider taking out a second mortgage on their home, otherwise known as a Home Equity Loan. This allows a homeowner to use the equity that they have established in their home to remodel, pay off other debts, pay for their children to go to college, or whatever else they choose to do with their equity. These loans typically have higher interest rates since they are a higher risk for the lender.

A Home Equity Line of Credit (HELOC) is also considered by homeowners that wish to take advantage of their equity. What makes a HELOC different from a traditional home equity loan is that the borrower does not receive the amount of equity up front, but instead has it as a line of credit in which the maximum amount that can be borrowed is their amount of equity. Unlike a traditional credit card line of credit, a borrower’s home is used as collateral.

Reverse Mortgage

A reverse mortgage is targeted towards senior citizens, 62 years of age or older, who wish to use their home equity to supplement their income. This type of mortgage is called a “reverse” mortgage because instead of making monthly payments to a lender, the lender makes payments to the homeowner. There are also no income or credit score requirements, although the homeowner is responsible for taxes, insurance, and maintenance of the home. In order to qualify for a reverse mortgage loan, the borrowers may not be delinquent on any federal debt, must live in the home, own the home outright or have a mortgage balance that can be paid off at closing with proceeds from the reverse mortgage loan. The loan does not have to be paid off until the borrower moves, sells the home, does not live in the home for twelve consecutive months, fails to pay property taxes or homeowners insurance, lets the home deteriorate beyond reasonable wear and tear, or the last surviving borrower passes away. Afterwards, the estate generally has six months to repay the balance or sell the home.

Maturation

After making regular payments on a loan, the loan matures the date it is due to be paid off. If a loan is not paid off by its’ maturity date, it enters into default. Depending on the amortization schedule, there may or may not be a balance of principal due on this date.