When an owner of a reverse mortgage passes away, there are certain procedures and implications that need to be considered. A reverse mortgage is a loan available to homeowners aged 62 or older that allows them to convert a portion of their home equity into cash. In this article, we will explore what happens when the owner of a reverse mortgage dies and the implications for their heirs or estate.
Repayment of the Reverse Mortgage
Loan Repayment: Upon the death of the reverse mortgage borrower, the loan becomes due. The borrower’s estate or heirs are responsible for repaying the loan. The repayment can be done through various methods, including selling the home, refinancing the loan, or using other assets from the estate.
Selling the Home: One common option is to sell the home to repay the reverse mortgage. The proceeds from the sale are used to settle the outstanding loan balance. If the sale price exceeds the loan balance, the remaining amount goes to the borrower’s estate or heirs. However, if the sale price is lower than the loan balance, the estate or heirs may not be responsible for the difference due to the non-recourse nature of reverse mortgages.
Refinancing the Loan: In some cases, the borrower’s estate or heirs may choose to refinance the reverse mortgage to keep the home. This involves obtaining a new loan to repay the existing reverse mortgage. However, the ability to refinance depends on various factors, including the borrower’s creditworthiness and the home’s value.
Timeframe for Repayment
Grace Period: After the borrower’s death, there is typically a grace period provided by the lender before the loan becomes due. This period allows the estate or heirs time to make necessary arrangements. The length of the grace period varies depending on the lender and the specific terms of the reverse mortgage.
Extensions: In some cases, the estate or heirs may request an extension of the repayment period. This can be done by contacting the lender and explaining the circumstances. Extensions are granted on a case-by-case basis and may require additional fees or interest.
Implications for Heirs or Estate
Inheritance: If the reverse mortgage is repaid through the sale of the home, the remaining equity belongs to the borrower’s estate or heirs. They can inherit the remaining proceeds after the loan is settled. However, if the loan balance exceeds the home’s value, the estate or heirs may not receive any inheritance from the home.
Options for Heirs: Heirs have several options when it comes to dealing with a reverse mortgage after the borrower’s death. They can choose to sell the home, refinance the loan, or pay off the loan using other assets. It is important for heirs to evaluate these options carefully and consider their financial situation before making a decision.
In conclusion, when the owner of a reverse mortgage dies, the loan becomes due, and the borrower’s estate or heirs are responsible for repayment. Selling the home or refinancing the loan are common methods to settle the outstanding balance. The timeframe for repayment is typically provided by the lender, and extensions may be available in certain circumstances. Heirs have various options to consider, and it is crucial to evaluate these options carefully before making a decision.