A Reverse Mortgage Won’t Burden Your Loved Ones
Many homeowners put off pursing a reverse mortgage loan, called a Home Equity Conversion Mortgages (HECM) because of the misconception that their loved ones will have to assume the financial debt once they’ve passed or moved away from the home. But that’s not the case. FHH-backed reverse mortgage products offer strong safeguards and guidelines to keep both the borrowers and their heirs protected. These safeguards include counseling programs, protection from crossover risk (when the amount of debt is more than the value of the house), FHA insurance, flexible payment options, and maximum loan amounts, to name a few. The fact is, your heirs are not responsible for paying off your reverse mortgage loan. Here is what they can expect.
When the last living borrower leaves the house permanently, or passes away, your heirs have several options to settle the reverse mortgage loan:
1. They can keep the home and pay back the loan. Heirs may choose to keep their parents’ home and can pay off the reverse loan through another source of funds – whether through cash or a conventional loan. Your heirs will never have to pay more than the full loan balance or 95 percent of the home’s appraised value, whichever is less.
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More on How Heirs Can Settle the Reverse Mortgage Loan
2. They can sell the home and pay off the loan. A reverse mortgage loan is a non-recourse loan, which means your heirs will never pay more than the house is worth. For example, if you owe $100,000, and your house only sells for $75,000, that gap is paid by mortgage insurance, not your heirs. If the home’s value exceeds the balance owed, your heirs keep the proceeds after selling the home.
3. They can give permission for the lender to sell the home. If there is no equity left in the house, and heirs do not wish to keep the home, heirs may decide to sign a deed-in-lieu and hand the house over to the lender.
The best advice, if you are going to get a reverse mortgage loan, is to involve your children or heirs in the conversations from the beginning. A Certified Reverse Mortgage Professional can help you and your loved ones navigate the reverse mortgage loan process, and provide some much-need guidance and explanation.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.