A reverse mortgage is a great idea for seniors who might be facing a financial shortfall in retirement.
With reverse mortgage loan — which are available for people age 62 and older — a lender provides a loan against your home. That money does not become due until the last borrower either passes away, sells the home, no longer occupies the property as his/her primary residence or fails to pay the property charges.
Of course, because a reverse mortgage involves taking on debt in one’s later years, many people considering this option understandably are curious about what effects the process might have on their children. After all, there’s a possibility that they will be the ones dealing with legalities after you pass away.
Fortunately, the repayment process is fairly straightforward.
What Happens When the Loan Becomes Due?
A reverse mortgage will usually become due and payable upon the death of the last surviving borrower. However, the loan could also become due for any of the following reasons:
- All surviving borrowers permanently leave the home, move to a new principal residence or fail to live in the home for more than 12 consecutive months;
- The home or property falls into disrepair or is not adequately maintained;
- You fall behind in your taxes or homeowners insurance.
Within a month of the loan being due, your family will need to make decisions as to how they want to proceed. If your family plans to sell the home, they’ll have six months, as long as they can prove they’re making a true effort. HUD offers up to two 90-day extensions on this deadline.
If your family wants to keep the house, they’ll need to either refinance or pay the loan off in cash. They’ll have up to six months to do this, but they’ll need to show proof as to why they need so much time.
If the home sells for more than the loan balance, your estate will receive the remaining proceeds. If the balance of the loan is less than the home’s value, your family could choose to refinance the debt with another lender and begin making monthly payments on the new loan. If the home value ends up being less than the debt, HUD and the lender will require an appraisal to allow the home to sell for 95% of the appraised value.
Your family will always have the option to simply turn the home over to the lender to satisfy the debt, but this option is only beneficial if more is owed on the loan than the house is worth.
What’s important to know here is that the loan is “non-recourse,” meaning that the sale of your home is the only way for the lender to recoup the balance. Should your home be worth less than the balance of the loan, the lender cannot come after you or your heirs for the difference.
Do My Children Have to Approve of the Loan?
No. A reverse mortgage is a contract between you, your spouse (if co-borrowing) and the lender. Adult children have no control over your decision.
If your adult child is living with you and on the home’s title, they might be required to sign paperwork stating that they understand the loan is due at the time of your death and that they’ll need to vacate the home unless/until the loan is repaid. You’ll need to attend mandatory reverse mortgage counseling (by an independent, HUD-approved agency); it is recommended, but not required, that your adult children attend with you if they also live in the home.
It’s crucial to find a lender with whom you’re comfortable. It likely will be a stressful time for your children, so choosing a lender who is knowledgeable, compassionate and always available can certainly help ease the strain.
At Premier Reverse Mortgage, we understand that the decision isn’t always an easy one. We have ample experience with the complexity of familial interactions. Give us a call today if you’d like to discuss your options or learn more about how a reverse mortgage can help you maintain a comfortable lifestyle into your golden years.