Preparing for the Inevitable: What Your Heirs Need to Know About a Reverse Mortgage
When you take out a reverse mortgage loan, there’s a good chance you intend to live in that home for life. But what happens next?
If your surviving spouse is a co-borrower or qualified non-borrowing spouse, he or she can continue to live in the home for their lifetime. But eventually, the time will come when your heirs will be left to settle the loan, and they should know your plans and have the resources they need to put those plans into action. That’s why it’s so important to keep them in the loop now, leaving no questions unanswered.
Here’s a quick overview of what to discuss, so you’re all on the same page:
An heir’s rights and legal obligations
When a reverse mortgage loan holder passes away, the loan becomes due and payable. A loan servicer will mail a notice including the current balance owed, payback options and a timeline for responding. The loan servicer can initiate foreclosure as required by federal regulation if the notice is not responded to within 30 days.
While payment is due immediately, your estate may have up to 12 months (an initial six-month period, plus two ninety-day extensions) to satisfy the debt if all requirements and criteria for loss mitigation postponements are satisfied by a legal representative of the estate. But remember, it’s in your heirs’ best interests to pay it off as quickly as possible. Interest on the balance, as well as monthly insurance premiums, will continue to accrue until the loan is settled.
If your heirs are actively working to sell or refinance the property beyond the due date, they are entitled to request two ninety-day extensions beyond the initial six-month period to attempt to satisfy the loan. Extensions require specific documentation be submitted to HUD to substantiate the request and are not guaranteed. The loan servicer can assist your heirs in this process.
Heirs may also sell the property or purchase it for 95% of the appraised amount. Because reverse mortgages are nonrecourse loans, when the home is sold, your heirs will not owe more than the current appraised value.
For example, if the appraised value of the property is $450,000, and the loan balance is $500,000 at the time of the sale, they are only obligated to pay off no more than $450,000.
Planning is key
Just as you want to talk over your plans with your heirs for when the loan is due and payable, you should also work closely with your servicer to communicate your intentions regarding your home and how your estate plans to handle the mortgage whenever the time comes. When everyone is aware of your wishes, they can work together to ensure they are carried out.
Reverse Mortgage Funding, LLC (RMF) has assisted thousands of Americans in leveraging the power of their home equity as a powerful financial tool. To find out how a reverse mortgage can help you free up funds for a comfortable retirement, call 888-277-1567 today. An experienced reverse mortgage specialist will set up with a convenient in-person appointment in your area.
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans retire more freely, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating; a 5-star / Excellent score on Trustpilot; 4.8 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call 888-277-1567 to speak with a licensed reverse mortgage specialist to learn about our retirement financing products and solutions.
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