Reverse mortgages can be a little daunting. This is due to the fact that a reverse mortgage is the complete opposite of what we come to expect of a mortgage. However, due to their unique nature, an important question arises, how does this affect my heirs? Reverse mortgages can be helpful to both you and your heirs, or it can be detrimental, depending upon the mortgage and the lender.
First off, take a look at your reverse mortgage contract when you first sign it, it will tell how much time an estate has to reclaim your house once you use it in your reverse mortgage. Typically, the lender will allow up to 6 months for the heirs to payoff the reverse mortgage. However, there are a few companies that only allow as little as 60 days before putting the house on the market. You will need to verify the exact terms with your mortgage lender. Also, repayment can be accomplished by refinancing the existing reverse mortgage to a conventional mortgage loan. The choice is theirs.
After your passing, the mortgage holder immediately gets control of your house. After this, your heirs will be offered the opportunity to pay off the reverse mortgage (with in the varied 60-180 grace period) and then resume ownership of the house. If the heirs do not pay off the debt and the grace period is up, the mortgage holder will put the house on the market.
The bank absorbs the difference when the proceeds are not enough to pay off the loan. If the heirs choose to keep the property, they will have to refinance the entire amount of the existing mortgage balance regardless of home’s appraised value. When a home is sold and if the proceeds are not enough to pay off the mortgage, the family will be responsible to make up the difference unless the mortgage was insured.
Federally insured reverse mortgages alleviate any responsibility that the estate may have if the house does not sell well enough to cover the debt. The house can be sold, if the heirs have no interest in keeping it. The loan can be paid off in this manner and the remain balance would go to them.
Hajir Nejati is a mortgage Loan consultant based in Orange County, California. If you would like to learn more about Reverse Mortgages, he has created a set of video’s to discuss the in’s and out’s and opportunities of using Reverse Mortgage strategies.
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