How Does a Reverse Mortgage Affect Heirs?
By: Courtney Jorstad
July 18, 2023 • 3 minute read
How Does a Reverse Mortgage Affect Heirs?
One of the perks of a reverse mortgage is that it does not have to be paid back as long as you remain in the home.
While a traditional mortgage is paid back with monthly mortgage payments, a reverse mortgage does not become due until you decide to move or until the last reverse mortgage borrower passes.
For this reason, those who are considering a reverse mortgage should be aware of the ways in which a reverse mortgage may affect their heirs.
Can Heirs Inherit a Home with a Reverse Mortgage?
Yes, heirs can inherit a home with a reverse mortgage.
Once the home is paid off, any equity that the home accrued since the reverse mortgage was taken out will belong to them.
There are protections in place to protect heirs when it comes to the payoff amount.
A reverse mortgage is a non-recourse loan. This means that they will never have to pay more than the loan balance or 95 percent of the appraised value of the home — whatever amount is less.
If an heir wants to keep the home, he or she can take out a traditional mortgage to pay back the reverse mortgage.
Are Heirs Obligated to Pay Back a Reverse Mortgage?
The heirs are not obligated to pay off the reverse mortgage loan, but they will be asked to decide how the loan will be paid back.
The lender will send the heirs a notice to let them know that the loan is due and payable.
From there the heirs will have three options: sell the property, keep the property, or turn it over to the lender.
How Long Do the Heirs Have to Decide?
The heirs will have 30 days to notify the lender of their decision. If they decide to keep or sell the home, they will typically have up to six months to resolve the loan.
Heirs may request a 90-day extension from the lender if the home has not sold after six months or if they are still actively working out financing to purchase the home.
What Happens if I Pass Before Receiving the Full Loan Amount?
If there are remaining unused funds, they will be added to the borrower’s estate. That means that any remaining funds will go to the heirs.
Include Your Heirs in the Process
If you are considering a reverse mortgage, and you plan to leave the home to an heir, it is recommended that you include your heirs in the process.
If you have more questions about a reverse mortgage, check out our complete guide to reverse mortgages.
If you are interested in pursuing a reverse mortgage, check out our list of recommended reverse mortgage lenders.
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.
Sources:
https://www.nolo.com/legal-encyclopedia/if-i-reverse-mortgage-can-i-leave-home-heirs.html
https://www.consumerfinance.gov/ask-cfpb/what-happens-my-reverse-mortgage-when-i-die-en-2096/
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