Reverse mortgages can offer a cash stream for seniors who live on a fixed income. This type of mortgage allows you to cash out the equity in your home without leaving your home. However, if you have heirs, they aren’t held responsible for the reverse mortgage repayment, but they have a responsibility to place the home up for sale and sell it, while working with the reverse-mortgage lender.
Reverse mortgages are intended for seniors who have their homes paid off or owe a small amount of money on the home loan that can be paid off with some of the funds from the reverse-mortgage loan. You can opt to have the money distributed as a monthly payment, line of credit or in one lump sum. The loan comes due when the mortgage holder leaves the property either to live somewhere else or dies.
Once the mortgage holder dies, the loan payment is due. The mortgage is considered a non-recourse loan, which means that the money made from the sale of the home is the only money required to repay the reverse-mortgage loan. The heirs are not responsible for any repayment of the loan with the exception of selling the home. Heirs of the deceased must notify the reverse mortgage lender as soon as the mortgage holder dies.
Sale of the Home
If the home does not sell for the amount of the reverse mortgage loan, mortgage insurance that is kept on the home will pay the difference to the mortgage lender. In other words, if the home sells for $100,000, but the lender holding the reverse-mortgage loan gave the mortgage holder $120,000 over the time of the loan, the mortgage insurance will pay the lender $20,000. Any heirs of the mortgage holder are not liable for any debt as a result of the reverse mortgage. If the heirs cannot successfully sell the home after six and have exhausted all extensions given by the lender, the mortgage lender can take the home through foreclosure.
If any heir of the mortgage holder wants to keep the home, they can do so by purchasing the home from the reverse-mortgage lender for the amount owed. One downside to a reverse mortgage and heirs is that if the house doesn’t sell for the amount owed on the reverse mortgage loan, there will be no money left in the estate of the deceased mortgage holder to leave to his heirs.
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