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What Happens When the Borrower Passes Away

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A reverse mortgage loan can be beneficial to help supplement your retirement fund, and as opposed to traditional mortgages, you do not have to pay back the loan in your lifetime, unless you have permanently moved out of the house or you did not keep up with the borrower responsibilities. One concern many borrowers have is that they want to know what happens to their reverse mortgage loan after they pass away. Here are a few questions answered about what happens after the borrower(s) on the loan passes away.

What happens after a borrower passes away?

1. If my spouse or I pass away, will the surviving spouse lose the home?

No, the surviving spouse will not lose the home. If the surviving spouse is on the loan, they will continue to keep the benefits of the reverse mortgage loan, as long as they continue to live on the property. To be on the loan, the borrower must be at least 62 years of age, but for some couples, this may not work as they may have a spouse under the qualifying age.  For non-borrowing spouses, a new rule was put into place in August 2014 that protects them from losing the home in a foreclosure.

2. Will my heirs be responsible for my loan?

No, your heirs will not be held responsible to pay back your loan. However, as heirs, they have an options on what they choose to do with the property.  After the last remaining borrower passes away, any of the following can take place:

  • Repay the loan and keep the property.
  • Sell the property and use the proceeds to pay off the loan.
  • Turn the property over to the lender/investor.
  • Walk away from the property without any liability to the loan.

Because this is a non-recourse loan and insured by the FHA, the heirs will not be responsible to pay for more than the house is worth at a bona fide sale. If they choose to walk away from the property, then there would be no liability from the bank, as returning the deed over to the bank will satisfy the loan. If they want to keep the home, then the loan must be paid off by the heirs or family of the deceased borrowers and they have the option to work with the bank to refinance the loan. Whether they want to keep the home or to sell it, the heirs and/or the family of the deceased has 12 months to work with the bank.

3. Does my family or anyone else living on the property have to leave the home?

If you are taking out a reverse mortgage on your home and you have other people not on title living with you, then it is a good idea to inform those living with you that you are planning to do a reverse mortgage. This is to ensure that they understand what terms they must abide by after the passing of the borrower on the reverse mortgage loan. As stated previously, non-borrowing spouses are now protected in a reverse mortgage and are allowed to continue living on the property.

A reverse mortgage can be a great option to help supplement your current retirement funds. If you want to learn more about how reverse mortgages can benefit you, call 1-888-808-8486 to speak to a Senior Advisor.

Image courtesy of [FrameAngel] / FreeDigitalPhotos.net

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