Key Takeaways
- A reverse mortgage becomes due when the last borrower dies, and heirs must quickly decide whether to sell, refinance, or give up the home.
- Because reverse mortgages are non-recourse loans, heirs never owe more than the home’s market value.
- Adding a spouse as a co-borrower helps ensure they can stay in the home without triggering immediate repayment.
A reverse mortgage gives older homeowners a way to supplement their income in retirement. It allows homeowners over the age of 62 to access their home’s equity without selling the property or making monthly mortgage payments.
But if you decide to take out a reverse mortgage, what happens to the loan after you die?
Understanding how a reverse mortgage works when the borrower passes away can help you plan ahead and make things easier for your loved ones down the road.
Reverse mortgages after death
A reverse mortgage becomes due and payable when the last borrower on the loan dies. That’s because reverse mortgages are designed to be repaid once the homeowner no longer lives in the property or uses it as their primary residence.
After the final remaining borrower dies, the lender will notify the estate that the loan is due. Once your heirs receive the due and payable notice from the lender, they typically have 30 days to decide what they want to do with the home. However, interest and fees will continue to accrue on the loan balance, so it’s best to make the decision quickly.
There are three options your heirs can pick from:
- Sell the home: The most common approach is to sell the home and use the proceeds to pay off the reverse mortgage. Any remaining equity goes to the borrower’s estate.
- Keep the home: If your heirs want to keep the property, they can refinance the reverse mortgage into a traditional home loan or pay the balance using other funds.
- Surrender the home: If the home is worth less than the loan balance, the heirs can sign the title over to the lender. Because reverse mortgages are non-recourse loans, neither the estate nor the heirs is responsible for paying more than the home’s market value.
Is there a co-borrower?
What happens to your reverse mortgage after you die depends on whether you had a co-borrower listed on the loan. If there’s a surviving co-borrower, the surviving spouse or partner can continue living in the home without needing to repay the loan immediately. As long as they keep up with property taxes, homeowners insurance, and basic home maintenance, the reverse mortgage stays in place.
If there’s no co-borrower listed, the loan becomes due immediately after the borrower’s death. This can be challenging for surviving spouses or partners who weren’t listed on the loan. However, your spouse may be able to remain in the home if they meet certain criteria and qualify as an Eligible Non-Borrowing Spouse. The process of qualifying can be difficult, so it may be a good idea to reach out to an attorney or a HUD-approved housing counselor for help.
Payoff options for posthumous reverse mortgages
Once the borrower has passed away, the lender will send a payoff statement showing the total balance due. From there, the estate or heirs can decide how to move forward. Here are the most common ways to repay a reverse mortgage after the borrower’s death.
Sell the home
Selling the home tends to be the simplest and most common solution. The proceeds from the sale go toward paying off the reverse mortgage balance, and any remaining equity belongs to the estate. This approach can also help heirs avoid ongoing costs like property taxes and insurance.
Refinance the loan
If your heirs want to keep the property, they can refinance the reverse mortgage into a traditional home loan. The new loan pays off the reverse mortgage balance, and the heirs take on a regular mortgage payment going forward. This can be a good choice for families who want to keep a long-time home in the family.
Pay the balance directly
Heirs who have the funds available also have the option to pay off the reverse mortgage in full. If you took out a Home Equity Conversion Mortgage (HECM), your heirs can either pay the full loan balance or 95% of the home’s appraised value, whichever is less. That provision can make it easier to settle the loan if the home’s value has declined.
Time to make a move? Let us find the right mortgage for youDeed the property to the lender
If the home is worth less than the loan balance or your heirs don’t want to keep it, they can transfer ownership to the lender instead. Signing the deed over to the lender satisfies the debt and releases the heirs from any further responsibility. Because reverse mortgages are non-recourse loans, the lender can’t pursue additional repayment beyond the home’s value.
If you currently have a reverse mortgage, consider putting a plan in writing that explains how you’d like your estate to handle the loan. It’s also a good idea to talk with your heirs about their options now so they understand the process and aren’t blindsided later.
The bottom line
A reverse mortgage can be a helpful way to access your home equity in retirement, but it’s important to think about what happens after you’re gone. The loan is due once the final remaining borrower dies, and your heirs will have to decide quickly about what to do with the property.
If you’re married, make sure your spouse is listed as a co-borrower on the loan. That’s the best way to ensure they can remain in the home without triggering repayment or needing to qualify as an Eligible Non-Borrowing Spouse.
If you’re currently considering taking out a reverse mortgage, talk to your lender or a HUD-approved counselor about your options. They can help you understand the full implications for your estate and ensure your family is prepared when the time comes.
