Reverse mortgages are a great option for seniors who want to remain in their homes but don’t want to be tied down by monthly payments. It can be difficult to pay back the loan if you have a lot of equity in your home and if you want the house to remain in your family after your death.
Having a strategy in place to deal with your reverse mortgage debt after your death is critical. It’s important for family members to know what they can do to keep the house, as well as their financial obligations.
- After a person’s death, how do they pay off a reverse mortgage?
- When a spouse or partner takes out a reverse mortgage, what happens to them?
- Creating a repayment schedule for a reverse mortgage
- After a person’s death, how do they pay off a reverse mortgage?
Buy a new home and pay off the old one’s debts. Borrowers or their heirs typically pay off the reverse mortgage by selling the home that served as security for the loan. The mortgage is paid off with the proceeds of the house sale. After the loan is repaid, the residual funds belong to the borrower (or their successors).
Pay off the mortgage with a lower sale price Borrowers who are in default on their HECM mortgage can pay it off by selling their home for 95% of its appraised value and utilising the proceeds to cover the HECM’s principal and interest.
In place of foreclosure, provide the lender a deed. There are many reverse mortgage borrowers who die with reverse mortgage balances that are more than the value of the home. When heirs acquire a house that is underwater, they may decide that submitting a deed to the lender is the quickest and most cost-effective choice rather than going through the foreclosure process. Your heir’s credit won’t be harmed if you choose with this option. Reverse mortgage holders who wish to relocate may also use this option; however, submitting a deed in lieu of foreclosure will have a negative impact on your credit score.
Re-mortgage to a forward-looking loan.
When a borrower wishes to leave their home but keep it as a rental property, they must find a way to pay off the reverse mortgage. Refinancing to a forward mortgage or using funds to pay off the reverse mortgage may be an option for borrowers who want to keep their home. Credit scores, debt-to-income ratios (DTIs), and down payment amounts must all be met before seniors can switch to a forward mortgage.
Make sure you know when the loan will be repaid or when the house will be sold. Once a borrower dies, the debt must be repaid in full within 30 days of their death. Your estate or heirs may be granted a 90-day extension from the lender if they plan to sell the home or seek funds to pay off the debt and need more than 30 days. It is possible that the lender may give repayment choices for spouses of deceased borrowers who desire to stay in the home for their whole lives if certain conditions are met, including presenting any relevant papers within 30 days of the borrower’s death.
When a spouse or partner takes out a reverse mortgage, what happens to them?
In order to understand how a reverse mortgage may impact a spouse or partner, it is necessary to determine whether or not they are listed as co-borrowers.
Co-borrowers include your spouse or partner.
Unless you and your spouse both move out or both die, you will not have to pay back the reverse mortgage. No repayment is required on a reverse mortgage until the second spouse vacates the home or passes away.
The Consumer Financial Protection Bureau (CFPB) recommends that long-term partners and spouses be co-borrowers on reverse mortgages because they don’t have to pay back the loan until one of the borrowers dies or moves out.
Your spouse or partner isn’t a co-borrower
Depending on the terms of your reverse mortgage, your spouse may be responsible for paying it back if you relocate or die without including them as co-borrowers. Whether or not they can stay in your house without paying back is determined by the timing of the HECM and the timing of your marriage.
They must be paid off. Mortgagee Optional Assignment (MOE) allows the non-borrowing spouse to stay in the home while the lender goes through the foreclosure process. If the non-borrowing spouse certifies certain information each year, they can remain in the residence. This data comprises the following:
- Non-borrowing spouse’s marriage to the borrower must be verified before and after their death in order to receive the reverse mortgage proceeds.
- A person’s Taxpayer Identification Number (TIN) or Social Security Number
- Keeping up with loan repayments
- The process of making sure that the debt is not due and payable
- Agreeing to stop receiving payments from the borrowed funds
However, a non-borrowing spouse can only use these loans if they complete the following requirements after their spouse moves out or dies:
- If they were married to the reverse mortgage borrower, they must have been eligible for the loan.
- It is required that they be listed as a spouse on any HECM paperwork.
- They must have been living in the house as their primary residence at the time of the loan’s origination, and must continue to do so.
- As a non-borrowing spouse, you will not have to pay back the reverse mortgage until you die or move out of the property.
Creating a repayment schedule for a reverse mortgage
After you pass away, your loved ones should be aware of your debt repayment strategy and be equipped with the knowledge and resources necessary to carry it out according to your instructions.
Get a will.
The best way to ensure that all of your assets, including your property, go to the right person when you die is by making a will before getting a reverse mortgage. It is the state’s prerogative to pick who gets your house if you die without leaving a will. For reverse mortgage debtors who have a spouse or long-term partner living with them, a will is very vital.
Ensure the accuracy of your documentation.
When the reverse mortgage San Diego is fully off, borrowers who used a reverse mortgage to purchase or substantially improve their house may be eligible for a home interest tax credit under current tax laws. In order to verify whether interest on a reverse mortgage is deductible, you must keep records of exactly how the money was spent.
