How does a reverse mortgage work When You Die - Kevin A. Guttman

Reverse mortgages are credit advances that allow the elderly to borrow against their home equity during their retirement years. Unlike traditional mortgages, borrowers don’t have to make a monthly payment on their reverse mortgage.  The Kevin A. Guttman team of mortgage professional are here to help you every step of the way.

In fact, a reverse mortgage is a particular type of loan that converts some of your home equity into cash. This loan allows borrowers to retain ownership of their home as long as their other obligations are kept, such as property taxes, maintenance, and home insurance. In a reverse mortgage, the lender makes cash instalments to the homeowner rather than the other way around.

Like any financial agreement, it must come to an end. A reverse mortgage matures when both homeowners die or relocate into a residence or new home. Even if your partner moves to a long-term facility, the reverse mortgage doesn’t have to be paid until they move or die.

What happens when homeowner dies in a reverse mortgage

Essentially, a reverse mortgage inheritance kicks in after the death of the last borrower. At this stage, the loan provider will offer a settlement loan amount with accumulated interest. Depending on the equity left on the property at the time of the loan maturity, children or non-spousal heirs have various options at their disposal.

Paying back the mortgage can be complicated, depending on how much equity is left in the house or whether you want the place to stay in the family. Many believe that the home reverts to the bank upon death, but that isn’t necessarily the case.

After death reverse mortgage options

As a reverse mortgage heir, your responsibility entails deciding whether to sell the property and settle the loan agreement, retain the home or gain ownership and consider a sale in the future. Typically, upon loan maturity, the lender allows 30 days to plan your course of action and between 3 to 13 months for mortgage repayment. With an array of options, examine your possibilities carefully.

Sell the property to repay the loan

Usually, heirs choose to pay off the loan by selling the house. Any leftover equity after paying off the loan is yours, and you can invest the remaining proceeds in a home of your own or towards other financial obligations. Although rare, the home sale may fall short of the repayable loan amount. You aren’t liable to make the excess payment, and the provider cannot claim repayment through other assets.

Deed in lieu of foreclosure

Some reverse mortgage balances may be higher than the market value of the home. When you inherit an underwater house, the easiest option may be to provide the lender with a deed instead of going through the various time-consuming foreclosure costs. Turn over the keys and choose not to be a part of future dealings. Selecting this option will not hurt your credit score and let you move forward without the hassle.

Take out a new mortgage. 

When you don’t own another property or have sentimental value in the family home, you can keep the ownership by repaying the full amount with increasing interest and fees. You can arrange payment with your funds, refinance the mortgage or look into other financial options. If keeping the house is essential, consider paying off the debt with assets such as a life insurance policy or an investment account.

When you decide to settle the loan, you won’t pay any taxes to transfer the title to your name. Remember, you can choose to repay the loan amount owed of 95% of the current market value, whichever is lower regardless of the loan balance.

Reverse mortgages are complicated loans. Borrowers and their hairs need to understand the repayment process when it comes due. The heirs still have the responsibility for upkeep and taxes. Insurance and fees will continue to accrue while you try to figure things out.

From complementing retirement finances to financing home improvements, this versatile mortgage can help seniors in various ventures during their lifetimes. Ideally, a healthy property market will increase the value of your home and thus increase the home’s equity.



Photo credit: