Reverse mortgages are helpful loans for myriad reasons; they turn stagnant home equity into spendable cash, any funds borrowers receive are considered non-taxable income, and they do not have to be paid back until the borrow stops living in their home. In some cases, borrowers decide to move out of the home they received their reverse mortgage on. When this happens, the proceeds from the sale go towards paying back what is owed to the lender, though they can keep any extra money from the sale. When a borrower dies, however, the matter of paying back the reverse mortgage becomes more complicated. In today’s blog, Family Home Loan Texas discusses the process of repaying the loan when this occurs and the timeline to expect if this happens.
What Happens When A Borrower Passes Away?
Once a reverse mortgage borrower passes away, the loan’s outstanding balance — including accrued interest — will need to be paid back to the lender. The heirs of the estate or the borrower who receive the house in the will are responsible for paying back the loan. If they find themselves in this position, they must either pay back the outstanding balance or 95% of the property’s current appraised value, whichever is less. In most cases, the heirs will choose to sell the house to satisfy this amount, though they will be able to keep any leftover funds. Alternatively, they can keep the house and pay the amount out-of-pocket. Because they still retain the house’s title, they can choose which course to take. If they cannot pay off the balance or cannot sell the house, they can also provide the lender with the deed to the house as an alternative.
It is important to note that the spouse of the deceased borrower could have additional repayment options in addition to ways of pf remaining on the property. They need to contact the lender to discuss their options in these cases. Regardless of the position they find themselves in, it is important to discuss matters with the lender to determine the best option for their unique situation.
What Is The Repayment Timeline?
According to the Federal Housing Administration, “the loan must be satisfied within 30 days of the date of death of the last surviving borrower.” They continue and note that there are instances when there could be a 90-day extension. However, it is important to note that no one will actually lose the house after this period. In fact, many individuals spend a year or more trying to complete the foreclosure process without the lender taking any action. Moreover, if the heirs are trying to sell the property rather than remain in it, the United States Department of Housing and Urban Development (HUD) changes its timelines based on the conditions of the housing market. Some individuals got extensions for two years when market conditions were particularly bad. Ultimately, there is no precise timeframe; there are simply too many circumstances and conditions that provide a one-size-fits-all answer.
This is further complicated by the fact that the lender probably won’t immediately be aware that the reverse mortgage borrower has passed away. Even if they were to find out immediately, it still typically takes at least 6 months to complete a foreclosure once the paperwork is filed. In most cases, however, the lender won’t know about the death or begin filing the repayment paperwork for quite a while. Again, if heirs are trying to sell the property, the lender will be lenient with their timelines because it is in their best interest to have it sell for an appropriate amount in order to get their loan back in full.
Heirs Should Still Have A Plan
Although the timelines for repayment are unclear and inconsistent, it is still wise to have a plan to pay back the loan when the time eventually comes. Heirs should meet with their family or estate attorney to ensure they fully grasp the situation and their obligations. If you are planning on getting a reverse mortgage — or already have one — be sure to keep your heirs or spouse completely in the loop, so any aspect of repayment does not blindside them, should you pass while still having this loan.
It is important to note that interest continues to accrue until the loan is fully paid, so it is in the heirs’ best interest to pay it off sooner to keep as much of the proceeds as possible. If you are the one with the reverse mortgage, please consider having a fully fleshed-out will and plan for your estate, so your heirs or spouse will have minimal concerns outside of selling the home or repaying the loan. While this is admittedly an uncomfortable topic for many to talk and think about, it is in everyone’s best interest to do so once you receive a reverse mortgage.
Contact Us If You Have Questions About Repaying A Reverse Mortgage
Reverse mortgages are immensely helpful for many senior citizens, and they have numerous benefits that can help you enjoy your retirement to the fullest. There are also more complex aspects that borrowers should be fully aware of. However, we are here to help you navigate every step of the process. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan and to receive a free, no-commitment consultation.