Aug. 01, 2023
Losing a loved one is a difficult time, and we want to be compassionate as we explain how a reverse mortgage loan is handled after the last surviving borrower’s death. Let’s go through five key points that you and your family should know:
1. Notifying the Lender:
When the last surviving borrower passes away, it’s important to inform the lender promptly. This can be done by a family member, the estate’s executor, or an attorney.
2. Estate Responsibility:
Repaying the reverse mortgage loan becomes the responsibility of the estate left behind. The estate’s representative, often the executor, takes charge of handling this aspect.
3. Repayment Options:
The estate has various options for repaying the loan. They can choose to sell the property, use other assets to pay off the loan (especially if they wish to keep the home within the family), refinance the loan, or allow the lender to take the property as repayment. If the property’s sale doesn’t cover the loan balance, there’s no need to worry. The “non-recourse” feature of a reverse mortgage ensures that the estate is not personally liable for any shortfall.
4. Reverse Mortgage Insurance Premium (MIP):
The most common type of reverse mortgage, Home Equity Conversion Mortgages (HECMs), is insured by the Federal Housing Administration (FHA). This insurance offers protection to the estate, ensuring they won’t owe more than the property’s value.
5. Repayment Timeline:
After the last surviving borrower’s passing, the estate should initiate communication with the Servicer as soon as possible. Typically, they’ll have six months from the date of death to repay the loan using any of the options mentioned above. However, in certain situations, they may be granted up to two 90-day extensions if they meet specific criteria, such as early communication and providing supporting documentation.
In conclusion, a reverse mortgage loan must be repaid after the last surviving borrower’s passing. The estate has several repayment options available, and they can take the time to choose what works best for their unique situation. We encourage you and your family to consult with their attorney and/or financial advisor for personalized guidance. Rest assured that the estate won’t be held responsible for any loan balance exceeding the property’s value, thanks to the loan insurance provided.