A reverse mortgage is a loan that can allow older adults to access home equity and avoid making monthly loan payments. A reverse mortgage must be paid off when all borrowers move out or pass away. Things can get complicated when a person with a reverse mortgage dies and leaves behind a spouse.
How Does a Reverse Mortgage Work?
Homeowners 62 and older who have built a substantial amount of equity can take out a reverse mortgage to access some of that money. The percentage of equity required depends on the ages of the borrowers.
Money from a reverse mortgage will be used first to pay off a home equity loan, home equity line of credit, and other debts, and then the homeowners will be able to use the remaining funds for other purposes. Borrowers can receive a lump sum or monthly payments, or they can get a line of credit that they can tap into as needed.
The most common type of reverse mortgage is a Home Equity Conversion Mortgage, which is insured by the Federal Housing Administration. HECM borrowers must use the property as a primary residence and must cover expenses such as property taxes, homeowners insurance, and maintenance.
An HECM with one borrower must be repaid if the borrower dies, moves out permanently, does not live in the house for 12 consecutive months for health reasons, no longer uses the house as a primary residence, sells the house, transfers title, or does not keep up with insurance premiums, property taxes, and maintenance. If two spouses are co-borrowers, the reverse mortgage must be repaid after both borrowers die, move out, or fail to meet other terms.
How can One Spouse’s Death Affect the Other’s Rights?
If you and your spouse take out a reverse mortgage together, and then one of you dies, the surviving spouse will have the right to remain in the house. That individual will have to cover property taxes, homeowners insurance premiums, and other applicable expenses. The remaining owner will also have to keep up with maintenance and keep the house in good condition. If the surviving spouse doesn’t meet those conditions, the lender may decide to foreclose, and the owner will be required to move out and repay the balance due on the loan.
After one spouse passes away, the surviving spouse may not want to live alone. If he or she chooses to move out of the house, the property will have to be sold to pay off the reverse mortgage. It may also be necessary to sell the home if the surviving spouse moves into a nursing home or assisted living facility for a year or more.
Understand Your Rights and Obligations
Reverse mortgages can be helpful financial tools, but they can also be confusing. If you’re thinking about taking out a reverse mortgage, make sure you understand how it could affect you and your spouse now and in the future.