Reverse mortgages allow senior homeowners to occupy their house without making additional payments and supplements their monthly income. But what happens to this mortgage after your death? Who pays the loan balance, and how it affects your heirs?
Read this guide about how a reverse mortgage follows after the primary borrower dies.
What Happens To A Reverse Mortgage When You Die?
In A Reverse Mortgage Who Owns The House?
Spouses and heirs have both rights and obligations
- Is wedded to the borrower during closing and stays wedded to the borrower for the lifetime
- Discloses his or her spousal status at the loan origination and closing
- Is listed in the HECM documents
- Has kept and continues to keep the home as a primary residence
- Can prove his or her legal ownership of the house within 90 days after the death of the borrower
- Meets all of the obligations stated in the mortgage documents
- Ensures the loan is never Due and Payable
- Occupy the home: Heirs may choose to keep the home by paying off the loan balance.
- Sell the home: Heirs may sell the home to pay off debt. In some cases, the principal balance comes out to be higher than the property’s appraised. In such cases, the heirs have to repay 95% of the home’s value or the outstanding balance, whichever is less. The reverse mortgage lender will request reimbursement from their insurance with the Federal Housing Administration (FHA). If the house sells for more money than the outstanding loan balance upon death, the heirs keep the remaining funds.
- Deed the property to the lender: When no excess equity is left, releasing the property to the lender helps avoid foreclosure. In this scenario, the heirs move out of the home with no financial obligations.