Losing a spouse is incredibly difficult, and having a reverse mortgage on the home can add complexity to an already emotional time. A reverse mortgage lets older homeowners access their homes equity, often aiding financial stability in retirement. When the primary borrower passes, the surviving spouse or family must decide what to do with the loan and the home.

Options might include staying in the home, repaying the loan, or selling the property. These facts may reduce anxiety and guide a family in choosing which option suits their needs at this critical moment.

What is a Reverse Mortgage, and How Does it Work?

A reverse mortgage is often referred to as a Home Equity Conversion Mortgage or HECM. This product, for homeowners age 62 and older, lets them leverage some of the equity they have in their homes for cash. Unlike a traditional mortgage, of course, a reverse mortgage does not require monthly payments, and the loan balance does not need to be repaid until the borrower leaves the house permanently, sells the house, or passes away. A reverse mortgage can be structured in different ways for couples, such as both spouses being borrowers on loans or just one is listed as the main borrower based on factors such as age, credit, and property ownership.

The loan structure matters because it dictates what happens to the mortgageand the homewhen one spouse passes away. If both spouses are on the loan, the surviving spouse can generally continue to live in the home with no change in the reverse mortgage.

Options for the Surviving Spouse When the Reverse Mortgage Borrower Passes Away

When a spouse who holds a reverse mortgage passes, there are several possible paths forward. The options vary depending on whether the surviving spouse was also listed on the loan and whether they wish to keep the home.

Remaining in the Home as a Non-Borrowing Spouse

A surviving spouse who is not listed as a borrower in a reverse mortgage might qualify as a "non-borrowing spouse" and remain in the home without paying the loan back immediately. The spouse has to inform the servicer of the loan and also produce a document indicating marriage and primary residence. Though they are permitted to stay in the home, the non-borrowing spouse will not be eligible for any other benefits under the reverse mortgage.

Paying Off the Reverse Mortgage

If the surviving spouse or family wishes to retain ownership, they can pay off the reverse mortgage by selling the home or using other funds. Most reverse mortgages are non-recourse, meaning repayment is limited to the homes value. Family members may also refinance into a traditional mortgage if they want to keep the property and assume loan payments, offering a way to retain the home long-term.

Selling the Home to Satisfy the Loan

Families who dont wish to keep the home can sell it to pay off the reverse mortgage. The sale proceeds settle the loan, with any remaining funds going to heirs or the estate. Since reverse mortgages cap repayment at the homes value, selling can be a straightforward way to close the loan. Lenders often provide six months or longer to arrange the sale, offering flexibility during the estate process.

Deed in Lieu of Foreclosure

If paying off or selling the home isn't feasible, family members can consider a deed in lieu of foreclosure, transferring home ownership to the lender to satisfy the loan. This option helps avoid foreclosure, making it a viable choice for families who don't wish to keep their homes. Before proceeding, families should contact the lender, as property-related expenses like taxes or insurance may still be due until the transfer is completed.

When to Contact the Reverse Mortgage Lender

The loan servicer plays a critical role in this process, and contacting them as soon as possible can help clarify options and prevent misunderstandings. Its a good idea to notify the lender of the borrowers passing within 30 days. The lender can provide specific details about the loans balance, available options, and any timelines involved.

Most reverse mortgage lenders will offer guidance and support, helping family members navigate the next steps without rushing. Having open communication can be beneficial in making arrangements like selling the home or extending the period needed to decide on a payoff plan.

Common Questions and Considerations for Surviving Spouses

Navigating a reverse mortgage after a spouses death often raises questions for the surviving spouse. Here are some of the most common concerns and factors to consider, along with guidance on how to address them.

What Happens if the Home is Underwater?

If the homes value is below the reverse mortgage balance, a non-recourse clause protects surviving spouses and heirs from paying the deficit. They can transfer the home to the lender without incurring additional financial responsibility.

Can Heirs Inherit the Home?

Heirs can inherit the home by repaying the loan balance, either through personal funds or refinancing. They may also sell the property, using the proceeds to pay off the loan, with any excess equity going to the estate.

What is the Timeline for Making a Decision?

After the borrower's death, lenders generally give family members six months to decide on the home. Extensions may be possible, allowing flexibility to arrange finances, sell the home, or handle required paperwork with the lender.

What If the Surviving Spouse Needs Additional Assistance?

Surviving spouses can consult financial advisors or estate attorneys for guidance on managing reverse mortgage decisions. Professionals can clarify legal rights and provide direction, helping families make choices that fit their personal and financial circumstances.

Conclusion

A reverse mortgage offers financial support in retirement. Still, when a spouse passes, it may lead to complex decisions for the surviving spouse or family members regarding the home and loan. Understanding available optionswhether keeping the home, selling it or transferring it to the lendercan make a difficult time easier to navigate. By knowing the timelines, rules, and support resources, surviving spouses can make informed, practical choices that align with their needs and preferences.