How Will a Reverse Mortgage Impact my Kids and Family?
The most important thing to remember is that your children and family will never be on the hook for repaying a loan that exceeds the value of your home once the time comes to repay the loan. When you get a federally-insured Home Equity Conversion Mortgage (HECM), there’s a government guarantee which specifies that if you pass away or move from the home, your family or heirs will never owe more than your home is worth.
Live-in Family Members
For a reverse mortgage borrower whose children or family live in the home, there is the consideration of how those live-in family members will be impacted by the loan. If they are not on the home title and are not on the reverse mortgage, they will have to move from the home once the loan becomes due and payable.
If the borrower passes away or moves from the home permanently, any children / heirs will have the right to sell or refinance the home, but will not be able to stay in the home unless they repay the loan. The same is true for non-borrowing spouses, which is why it is very important to consider the implications of removing a spouse from the home title, which is possible, but not recommended.
Informing Family Members
Your lender should require any adult children or other people living in the home to sign a document stating they understand that they understand the loan is due once the borrower leaves the home or passes away. Non-borrowing family members are also encouraged to attend the counseling that is a mandatory step in getting a reverse mortgage.
Once the loan does become due and payable, the loan servicer will work with the borrower’s heirs to get the loan repaid.
Anyone living in the home and not on the reverse mortgage will have six months to repay the loan before the servicer will take over through foreclosure. Heirs will be allowed two additional 90-day extensions after the six month period has passed in order to try to sell the home and repay the loan.
The Reverse Mortgage Guarantee
Ultimately, the reverse mortgage should not have an impact on family members because the loan is made especially for the borrower for whom it is designed to help age in place. By paying for insurance on the loan, you are guaranteed that your family will never inherit loan debt beyond your home’s value.
From actual disclosures:
NOTICE TO NON-BORROWING SPOUSE OR RESIDENT
If you are a non-borrowing spouse or resident and plan to reside in the above referenced property, you should be aware of the following possible circumstances:
• The Reverse Mortgage Loan cannot be assumed by the non-borrowing spouse or
resident upon the borrower’s death or change of primary residence.
• If the borrowing spouse predeceases you or otherwise no longer occupies the
property as their primary residence, the reverse mortgage will become due and
I/we certify that I/we have read the notice set forth above and fully understand the possible consequences of being a non-borrowing spouse or resident.
OWNERSHIP INTEREST CERTIFICATION
If you have an ownership interest in the above referenced property but will not be a borrower under the proposed reverse mortgage, you need to be aware of the following:
The Lender does not recommend or require any changes to the ownership of real property as a condition to making a reverse mortgage loan. However, the reverse mortgage program has certain restrictions that prevent some property owners from being eligible borrowers. These restrictions also prohibit an individual from holding an ownership interest in the property if they are not an eligible borrower. As a result of these restrictions, any non-eligible owners will be required to relinquish their ownership interest in the property. By relinquishing your ownership interest, you are affecting your legal rights.
The Lender strongly suggests that you consult with your financial and/or legal advisor(s) to determine if this reverse mortgage loan is in your best interest. If you continue to reside in the property after divestiture and the borrower predeceases you or no longer occupies the property as their primary residence, the reverse mortgage will become due and payable. Typically, the borrower’s estate must pay off the reverse mortgage through the proceeds of the sale of the property or through a refinance into a new mortgage.
I hereby certify that I have received and read this disclosure. I understand and agree that the Lender has made no representations regarding my legal rights, but has strongly suggested that I seek legal advice before signing this or any other document associated with the reverse mortgage loan.
Recommended reading from this category:
- Selling Your Home after a Reverse Mortgage Loan
- Reverse Mortgages: What Happens After Death?
- Reverse Mortgage Heirs: How Much Will You Owe?
By Cliff Auerswald