While a reverse mortgage may seem like a dream come true to a retiree, it’s important to remember that reverse mortgages also involve heirs. What happens to reverse mortgages when the owner dies? Let’s take a look at reverse mortgages after death and what you and your heirs can expect.
What a Borrower’s Death Means
When taking out a reverse mortgage, it’s always best to come up with a plan with your heirs before death. After death, the lender will give the heirs a notice that the debt is due. The lending institution usually requires to be notified of a plan within 30 days of receiving the notice. How long heirs have to pay off reverse mortgages after death will vary. However, after notice is given, heirs typically have 6 months to complete the transaction and pay off the debt in full.
Can Your Heirs Inherit Your House?
Yes, homeownership is possible for heirs even if there is an outstanding reverse mortgage in place when the owner dies. However, heirs will not be able to receive the title of the property while your property is still subject to the reverse mortgage. For example, if the homeowner dies after receiving $200,000 of reverse mortgage funds, the heirs will inherit the home while it is subject to $200,000 debt. Alongside the debt, heirs will inherit interest and any fees that have occurred and these fees will continue to rise until the reverse mortgage debt is fully paid off.
How Can Your Heirs Repay the Debt
The big question when you’re thinking about reverse mortgages when the owner dies is, how exactly can your heirs repay the debt? Those who inherit a home that is subject to a HECM reverse mortgage get four options:
- Payback the loan – Heirs can choose to keep the home by repaying 95% of the appraised value themselves. The remaining 5% balance will be covered by FHA insurance
- Sell the home – Your heirs can choose to repay the loan by using the proceeds made from its sale to pay off the debt
- Turn over the home – Your heirs can fully give up their rights to the home by turning over the home to the lender by deed
- Do nothing – Your heirs can choose to take no action, which will result in the lender foreclosing the home
Unlike a traditional mortgage, a reverse mortgage does not only affect you. When the owner dies a reverse mortgage affects quite a few family members. Before signing off on one, discuss options and plans with your heirs. After you have passed, you want to ensure that your heirs are able to efficiently deal with dissolving your reverse mortgage. Regardless of the option they choose after death, it is important that everyone is on the same page long before death ever occurs. Contact us to learn more today.