What Happens With a Reverse Mortgage if the Owner of the Home Dies?

When a homeowner with a reverse mortgage dies, the reverse mortgage has to be paid off. The loan also has to be paid if the borrower is still alive but moves out of the home. Heirs can pay off the reverse mortgage by selling the home, giving it back to the lender, paying the reverse mortgage in cash or refinancing the home with a traditional mortgage. 

A reverse mortgage allows the home’s owner to borrow money against the home’s equity. The borrower doesn’t make payments on the mortgage while they’re alive; instead, they pay it off when they die or move. This means the balance of the reverse mortgage increases over time and can exceed the home’s value by the time it has to be paid. 

Reverse Mortgages Must Be Paid When the Borrower No Longer Lives in the Home

The purpose of a reverse mortgage is to allow the borrower to stay in the home while also tapping into the equity to have cash for living expenses. Once the borrower no longer lives in the home, either due to death or moving, the loan becomes due for the total balance accrued. The loan generally has to be paid within 30 days of the lender sending a due and payable notice. However, the heirs may get extensions if selling or if securing funds takes longer.

If there are two borrowers on the loan, the surviving borrower can continue living in the home and receiving money from the reverse mortgage. If the surviving spouse isn’t a borrower, they might qualify as an eligible non-borrowing spouse, which allows them to stay in the home without paying the reverse mortgage. They can’t receive any money from the reverse mortgage, though. Non-borrowing spouses who don’t qualify can stay in the home by paying off the reverse mortgage.

When both owners and borrowers die, their heirs inherit the house, but they’re also responsible for satisfying the loan. They have to decide how to pay off the reverse mortgage balance, whether or not they want to keep the house. 

Getting Rid of the House

If the heirs don’t want to keep the home, they can sell it to satisfy the reverse mortgage. Selling the home for more than the reverse mortgage balance allows the heirs to pay the loan and keep any remaining proceeds. 

If the home sells for less than what’s owed, the heirs can still satisfy the loan if they sell the home for 95% of the appraised value. The lender can’t require the heirs to pay the difference. 

Another option for a reverse mortgage with a balance that is more than the home’s value is to deed the property to the lender. If the heirs do nothing and don’t deed the home to the lender, the home will likely go into foreclosure.

Keeping the House

Some heirs want to keep the home in the family, which requires them to pay off the reverse mortgage without the proceeds of a home sale. If the reverse mortgage balance is low or the heirs have access to a large sum of money, they can pay off the loan and keep the home. Otherwise, they’ll need to secure a new mortgage to cover the reverse mortgage balance.