Your heirs do! Contrary to the very common myth, the bank does not own your home - you do. A reverse mortgage is just a loan against the home like any other mortgage. The major difference is that usually on a reverse mortgage the payoff amount is higher than what you originally borrowed because of accrued interest.*
The loan becomes immediately due and payable upon the death of the last remaining borrower, but the lender cannot start foreclosure proceedings (based upon said death) until 6 months from the date of death.
If the loan balance is lower than the home value, then the heirs will most likely choose to sell the property, payoff the loan and keep the change. However, they may also decide to pay the loan off with cash, or refinance the loan. It’s entirely up to them.
If the loan balance is higher than the value of the home (underwater) then don’t panic. Reverse mortgage loans are non recourse loans, meaning that if the lender suffers a loss upon foreclosure and sale of the home they do not have any recourse to the estate, borrower, or heirs. The lenders only option is to sell and take the proceeds as payment in full. The lender then may qualify for a claim of loss on the FHA Mortgage Insurance that was purchased on the loan. It’s all good.
Leaving something to your children is an important component to feeling like you’ve lived a successful life, but more important is leaving your children with the tools to be successful in their own lives. Education, confidence, independence and love. A reverse mortgage is a financial tool that may help you to live a more financially secure life.
*Balance due will include all upfront fees, loan proceeds, draws plus interest.