Reverse Mortgage: What Your Heirs Should Know

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When planning for retirement, many older adults have utilized a reverse mortgage loan to help supplement their overall retirement plan.  It is also recommended to have a plan in place when the homeowner permanently leaves the home.  This may involve their heirs or adult children who need to know what happens and what needs to be done when the last borrower leaves the home.

If you or a family member have a reverse mortgage, you should know the following:

Before You Permanently Leave Your Home

A reverse mortgage becomes due and payable when the last borrower on the loan permanently leaves the home.  Lenders may have restrictions, and because of financial privacy laws, may not be able to speak to anyone who has not been authorized to speak on your behalf.

Once you have decided who will be handling your affairs, inform your lender and provide written authorization regarding who your lender can speak to as it relates to your loan.

Your heirs should also know where the reverse mortgage statements are kept, as they will need them once the loan becomes due and payable.

Communicate with the Loan Servicer

The loan becomes due and payable once the last borrower has permanently left the home. It is at this point your heirs must decide if they want to keep the home or sell it and keep any remaining proceeds.

It is important to stay in contact with the loan servicer once the loan becomes due and payable.  The times vary for repayment, and there should be a prompt response to any questions from the loan servicer, so the loan doesn’t go into default.

What if Your Heirs Want the Home?

If your heirs want to keep the home, the reverse mortgage loan will need to be paid off.  They can take out a new loan to pay off the loan or they can pay with cash.

A benefit of the reverse mortgage is that your heirs won’t have to repay more than 95% of the home’s appraised value, even if the loan balance is greater.

If the value of the home is less than the mortgage balance, your heirs are not responsible for the difference and are not required to use their assets to pay off the loan.

What if Your Heirs Don’t Want the Home?

 If your heirs don’t want to keep t­he home, they can manage the sale of the home.  Additionally, they can keep any capital gain if the home is sold for more than the reverse mortgage loan balance.

Reverse mortgages are ‘non-recourse” loans and if the home is sold to repay the loan, your heirs won’t owe more than the loan balance or the value of the property (whichever is less) and no assets other than the home will be used to repay the debt.

If you have any additional questions about a reverse mortgage loan, or how it can affect your heirs, call (800) 976-6211 to speak with a reverse mortgage advisor who can provide you with any additional information.