What Is A Reverse Mortgage? (Part 6)
A 12 Part Series
Part 6 - Outliving the Reverse Mortgage
A reverse mortgage can not be outlived. As long as at least one homeowner lives in the home and keeps property taxes and homeowner's insurance current, the loan does not need to be repaid. In addition, because of the FHA insurance, no one will ever owe more than the home's value. A reverse mortgage can not become "upside down".
Reverse Mortgages and Heir Inheritance
A common concern for homeowners considering a reverse mortgage is making sure that their heirs not be saddled with debt and will inherit the home.
In the event of death of the homeowner or in the event that the home ceases to be the primary residence, the homeowner's estate can choose to convert the reverse mortgage into a traditional mortgage to keep the house. Otherwise, the estate can sell the home, pay the balance due of the reverse mortgage, and keep the remainder of the home's value.
If the equity in the home is worth more than the balance of the loan, the remaining equity belongs to the heirs. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.
If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA.
The estate has six months to arrange the sale or refinance of the home. An extension to one year can also be requested.
For example:
A $200,000 home is inherited by the estate with a $125,000 reverse mortgage balance.
- The heirs decide not to keep the home - The heirs sell the home for $200,000, pay the lender $125,000, and keep $75,000.
- When the balance of the reverse mortgage is more than the home is worth - The estate has no obligation. The home can be turned over to the lender who will sell the home to repay as much of the balance as possible. Or, the heirs can refinance the reverse mortgage into a traditional mortgage and keep the home.
Next: Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.
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