Death and Reverse Mortgages: What You Need to Know
No one likes to think about death, but we all know it’s a stark and unavoidable reality. In fact, most smart borrowers actually calculate their estimated survival age when deciding if a reverse mortgage is a good choice for them. Lenders, of course, do this, too, to determine the amount of money they will make from their borrowers in aggregate. But when you pass away, what happens to your reverse mortgage? Let’s take a look.
With HECMs, Qualifying Non-Borrower Spouses Can Sometimes Stay in a Home
If you and your spouse are co-borrowers on an HECM, and one dies, nothing in particular changes. As long as the remaining borrower continues to uphold their part of the reverse mortgage contract, they can continue receiving funds from the mortgage (if there are any more to be had), and can continue to stay in their home as long as they occupy it for a majority of the year and continue to pay property taxes, homeowner’s insurance, homeowner’s association fees, and continue to keep the home in good condition.
If you die and your spouse is not a borrower on the HECM, they may still be able to stay in the home. For reverse mortgages issued after 2014, lenders are required to allow a qualifying non-borrower spouse to stay in the home, provided that they meet certain conditions. These include having been married to the borrower when they took out the HECM, as well as paying all taxes and fees, and annually re-certifying themselves as a qualifying spouse who uses the property as their primary residence and lives there for the majority of the year.
Proprietary Reverse Mortgages and Non-Borrowing Spouses
For proprietary reverse mortgages, including jumbo reverse mortgages, there are no specific set rules as to whether a non-borrowing spouse can stay in a home after a borrower has died. Specific regulations can vary from lender to lender, and you should make sure to get all the details on this before deciding to go through with a non-HECM reverse mortgage.
HECM Reverse Mortgages and Your Heirs
In general, if you have an HECM reverse mortgage, and your heirs want to keep your home after you die, they will have to pay off the full loan balance, or 95% of the home’s appraised value, whichever is less. If they do not have the funds to do this, they will likely be forced to sell the home. If the sale proceeds of your home do not cover the reverse mortgage debt, your heirs will not be forced to pay the difference. However, if there is money left over after the sale of your home, it will go to your heirs.
Just like the rules involving non-borrowing spouses, if you have a non-HECM (i..e. proprietary) reverse mortgage, rules involving heirs can vary from lender to lender. So, if you want to take out a proprietary reverse mortgage and leaving an inheritance to your heirs is a priority to you, you should make sure to learn all the details of your lender’s policies before making a final decision.