The Heirs' Responsibility When It Comes to a Reverse Mortgage
When a homeowner has a reverse mortgage, the loan typically becomes due when the borrower sells the property, the last surviving borrower permanently moves out of the home, or when the last surviving borrower passes away. In the case of the latter, the heirs become responsible for the loan.
Upon the last borrower’s passing, the heirs become responsible for a number of things regarding the loan. We’ll explore each of these responsibilities below.
- Paying off the loan.
The heirs have several options for paying off the loan, including selling the property, paying the loan balance in full, refinancing the property, or allowing the lender to retain the property as repayment. Thanks to the non-recourse feature of the loan, if the property is sold, the heirs are not held responsible for any loan balance above the sale of the home.
- Maintaining the property and keeping it in good condition.
Until the loan has been paid, the heirs are responsible for maintaining the property, just as the borrower was before they passed. This includes paying property taxes, insurance premiums, and any necessary repairs or maintenance.
- If the heirs choose to sell the property, then they are responsible for the costs associated with the sale of the property.
These costs can include real estate commissions, closing costs, and other related expenses. If the property is sold for more than the loan balance, the heirs will receive the remaining proceeds.
When your clients choose to get a reverse mortgage, we encourage them to ensure their heirs are aware of the potential responsibilities. By understanding their obligations, the heirs can make sure they are able to fulfill their responsibilities and avoid any potential difficulties.
Our Smartfi Contributors are made up of a collective group of mortgage industry professionals, who share their personal opinions of the mortgage industry, topics, and various products. These are the express opinions of the Smartfi Contributor, and the article is based on their opinion and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by Smartfi Home Loans, LLC.
Reverse mortgage proceeds may affect the eligibility and payments of Medicaid, SSI and similar program benefits. All clients should be advised to seek guidance on their financial situation with their financial planner/advisor. A reverse mortgage is not suitable for all clients in all situations.