Many seniors have turned to a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage loan, to assist them financially during retirement. However, their heirs or adult children can be left wondering what to do when the last borrower on the loan dies or moves out of the home.
If you or a family member have a reverse mortgage, the following information might be helpful to know:
Things to do before the borrower leaves the home
A reverse mortgage becomes due when last borrower on the loan dies or leaves the home. Many lenders have restrictions and, due to the financial privacy laws, a common one is not being able to speak to anyone who is not authorized to speak on the borrower’s behalf.
Once the borrower has decided who will be handling their affairs, the borrower should contact their lender and provide them with a written authorization regarding who they may speak with as it relates to all things regarding their loan.
Borrowers should also share with their heirs where the reverse mortgage statements are kept, as they will need it once the loan is due and payable.
Once the last borrower has left the home the loan becomes due and payable. The heir must decide if they want to keep the home or sell it and keep any remaining proceeds.
Just like a traditional mortgage, it is important to stay in close contact with the loan servicer. Furthermore, times vary for repayment so be sure to answer any questions from the loan servicer promptly so the loan doesn’t go into default.
What If the Heirs Want to Keep the Home?
If the heirs want to keep the home, they will need to pay off the loan. A new loan will be needed to pay off the old loan unless they have cash available.
A benefit of the reverse mortgage is that 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, heirs are not responsible for the difference and not required to use their assets to pay off the loan.
What If the Heirs Don’t Want the Home?
If heirs don’t want to keep the home, they can manage the sale of the home. Furthermore, they can keep any capital gain if the home is sold for more than the reverse mortgage loan balance.
HECM’s are ‘non-recourse” loans and if the home is sold to repay the loan, 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 licensed reverse mortgage specialist who can provide you with any additional information.