What Happens to a Reverse Mortgage After Death?
One of the most commonly asked questions surrounding reverse mortgages is “What happens after I die?” This isn’t a fun thing for anyone to think about, for the homeowners or their children, but it’s important to understand this part of the process, and is an essential aspect of estate planning.
When the homeowner dies, and therefore is no longer living in the home as his or her primary residence, the reverse mortgage loan will become due and payable. This does not mean that the payoff is required immediately, but the estate and the loan servicer will work together to make the repayment arrangements. Often the property will be listed for sale, and the funds received for the sale of the home will be used to repay the reverse mortgage amount, which will include the amount borrowed as well as interest and finance charges.
Here are a few of the common concerns many potential borrowers have on this subject, and an explanation of what happens in each scenario:
Will my spouse have to sell the home after I die?
When both individuals are borrowers on the loan the reverse mortgage will remain in place as long as one of them remains living in the home as his or her primary residence. This means that if one borrower passes away the surviving spouse will not be forced to repay the loan at that time. He or she will continue to receive the benefits of the reverse mortgage such as access to an equity line or continued monthly payments, depending on the payment plan selected. For this reason it is important that both members of a married couple be listed as borrowers on the reverse mortgage in most cases.
Will there be anything to leave to children or other heirs?
This depends on the payoff amount of the reverse mortgage and the current value of the property. Once all borrowers are no longer living in the home as a primary residence, for example after their passing, the reverse mortgage will become due and payable. The amount borrowed, interest fees accrued over time, and any HECM finance charges must be repaid at that time. In many cases the estate will sell the property and use the proceeds of the sale to repay the mortgage loan. Any funds available from the sale above the amount needed to pay off the reverse mortgage will become part of the estate and be inherited by its heirs.
Should the heirs prefer to keep the property they also have the option to repay the reverse mortgage with other means, such as out of personal assets. If a child or heir would like to live in the home rather than sell it they may choose this option.
If the amount of the reverse mortgage is greater than the value of the home the estate will not be required to make up the difference, and heirs may still inherit other assets left to them. The repayment amount will not exceed 95% of the appraised value of the property. The mortgage insurance paid for as part of the HECM finance charges protect lenders against losses in this scenario.
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What if I have to leave the home while I am still living?
Some reverse mortgage holders live out their lives in their homes, but many others find circumstances arise that require them to move out of their homes sooner. These scenarios could include:
- The homeowner needs assistance and moves in with family or into an assisted living facility.
- The homeowner moves to a home that is more accessible as they age and have difficulty climbing stairs, or maintaining the property.
- The homeowner moves to a different location to be closer to family.
Should the senior decide to sell or move away from the home the reverse mortgage will become due at that time. This means that the amount borrowed, interest fees, and HECM finance charges must be repaid. Most often these funds are repaid through the proceeds of the sale of the property. Any amount received in the sale above the repayment amount will belong to the homeowner. If the reverse mortgage amount exceeds the value of the home there will be no additional burden of debt. Because a reverse mortgage is a non-recourse loan the homeowner will not be required to pay more than 95% of the appraised value of the home at the time the loan becomes due.
Visit our FAQ section to find answers to popular reverse mortgage questions.