Reverse Mortgage To Pay Off Your Mortgage
A HECM can pay off the mortgage or HELOC you already have, as long as the reverse mortgage becomes the first lien on your home. Here is what can be paid at closing, what cannot, and what has to be settled first.
Quick answer
Saxton Mortgage does. At least one HECM program we offer pays off the existing mortgage at or before closing, because the HECM must be the first mortgage and subordinate financing is not allowed. If the lien is 12 months old or newer and you took more than $500 cash from it, it must be paid outside of closing, except an unseasoned HELOC, which can be paid off at closing within HUD’s limits. Debts not attached to the home, such as credit cards and installment loans, cannot be paid off at closing.
What can be paid at closing
Each item below is an FHA rule for HECMs or a requirement of our reverse mortgage program.
- Existing mortgages and HELOCs on the home, subject to FHA’s rules for liens 12 months old or less.
- Judgment liens recorded against the home.
- A PACE obligation. It must be paid in full prior to or at closing, and HECM proceeds may be used.
- A delinquent FHA-insured mortgage on your principal residence, which must be paid off prior to or at closing.
- Payments to contractors for repairs the appraiser required as a condition of closing.
- Property tax, flood and hazard insurance payments the lender requires at closing.
Pay off your mortgage
The new loan comes first
Second liens cannot stay
Newer liens have rules
Some debts stay outside
Federal debt comes first
Can A Reverse Mortgage Pay Off Your Mortgage?
Yes. A HECM can be used to pay off existing debt on your home. Any existing mortgage must be paid off before or at closing, because the HECM must be the first mortgage.
When you take out a HECM on the home you live in now, the lender must make sure the home will be free and clear of other liens, or that any permitted lien sits behind the HECM liens. FHA allows some liens to stay in that position, but our reverse mortgage program does not allow subordinate financing. That means a second mortgage or HELOC has to be paid off, not left in place. A second mortgage from a government entity must be paid in full prior to closing.
Amounts needed to clear existing liens on the home are Mandatory Obligations. These are the required fees and charges paid at closing or during the first 12 months, and the lender must make sure they are paid. If your payoffs and costs add up to more than your Principal Limit, you bring the difference to closing. You can also bring your own funds to reduce Mandatory Obligations. Once a lien is paid off at closing, its payment is no longer counted in your monthly expenses when the lender reviews your finances.
Newer liens get a closer look. A lien in place more than 12 months before closing can be paid off with HECM proceeds. A lien 12 months old or less can be paid off too if you received $500 or less in cash from it. Otherwise, with our reverse mortgage program, that lien must be paid outside of closing or the loan is declined. An unseasoned HELOC is the exception: it can be paid off at closing with your funds, HECM funds or both, within FHA’s first-year limit. See our reverse mortgage refinance page.
Why choose Saxton to pay off your mortgage
This page is for homeowners 62 or older, and their adult children, who still owe on a mortgage or HELOC and want to know whether a HECM can pay it off.
Judgment Liens On The Home
Court judgment liens against the home must be paid in full prior to or at closing, and liens recorded against the home can be paid with HECM proceeds.
Other Judgments Are Separate
Judgments that are not liens on the home cannot be paid with HECM proceeds. You pay those from your own funds.
PACE Must Be Cleared
A home that will stay encumbered by a PACE obligation is not eligible. It must be paid in full prior to or at closing.
Only Home Debts At Closing
Only debts attached to the home can be paid at a HECM closing. Credit cards, installment loans and other debts not tied to the home cannot.
Leased Energy Systems Differ
A Uniform Commercial Code lien on leased equipment or a leased energy system cannot be paid off at closing with HECM proceeds.
Federal Debt Comes First
With our reverse mortgage program, the loan is suspended until delinquent federal debt is resolved with the IRS or the agency owed.
Hear From Homeowners Like You
Frequently Asked Questions
Straight answers about paying off a mortgage with a reverse mortgage.
Saxton Mortgage does. At least one HECM program we offer pays off the existing mortgage at or before closing, because the HECM must be the first mortgage and subordinate financing is not allowed. If the lien is 12 months old or newer and you took more than $500 cash from it, it must be paid outside of closing, except an unseasoned HELOC, which can be paid off at closing within HUD’s limits. Debts not attached to the home, such as credit cards and installment loans, cannot be paid off at closing.
Yes. A HECM can be used to pay off existing debt on your home, and any existing mortgage must be paid off before or at closing. The HECM must be the first mortgage. Amounts needed to clear existing liens on the property are Mandatory Obligations, and the lender must make sure they are paid.
No. Our reverse mortgage program does not allow subordinate financing, so a HELOC or second mortgage on the home has to be paid off. A HELOC that does not meet FHA’s seasoning rules can still be paid off at closing with your funds, HECM proceeds or both, as long as your first-year draw stays at or under 60 percent of the Principal Limit. For a HELOC 12 months old or less, the lender needs your most recent HELOC statement.
It can be paid off if you received $500 or less in cash from it, at closing or through draws added together. The lender needs a copy of that lien’s settlement statement. If you received more than $500 in cash, our reverse mortgage program requires the lien to be paid outside of closing or the loan is declined, unless it is a HELOC.
You bring the difference to closing. Under FHA’s rules, the cash you need to close a HECM is the difference between your Mandatory Obligations and your Principal Limit. You can also bring your own funds to reduce Mandatory Obligations.
No. Only debts attached to the home can be paid at a HECM closing. Credit cards, installment loans and other debts not attached to the home cannot be paid off at closing. Judgments that are not liens on the home cannot be paid with HECM proceeds either, so you pay those from your own funds.
With our reverse mortgage program, the loan is suspended until you resolve delinquent federal tax debt with the IRS, or delinquent federal non-tax debt with the agency you owe.
You stay responsible for property charges, including property taxes, hazard insurance, flood insurance if it applies, ground rents, homeowners association or condominium fees and special assessments. With HUD’s approval, the loan can become due and payable if no surviving borrower lives in the home as a principal residence, or if a borrower obligation under the HECM is not met. It becomes due and payable automatically in other cases, such as when a borrower has died, no surviving borrower lives in the home and no deferral period applies, or when a borrower transfers all of their title to the home and no other borrower keeps title. You can prepay all or part of the loan at any time without penalty.
Find out what you qualify for
Tell us what you owe on your home and what you hope to do next, and we will look at whether a HECM can clear it.
Get Pre-Qualified- U.S. Department of Housing and Urban Development, FHA and housing resources
- U.S. Department of Housing and Urban Development, FHA mortgage insurance premiums
Loan amounts, rates, terms, and eligibility are subject to credit approval, asset and income verification, appraisal, and program guidelines. Program availability varies by state. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.