Reverse Mortgages After Death

When building an estate plan, one of the most high-value and sentimentally important assets Is your home. This house may have been passed down for generations, or it may have been a major triumph for you and your family to afford your home. 

Because of this, you may consider certain options, like a reverse mortgage, to keep your home and reduce any financial disadvantages you may face. However, a reverse mortgage can have a massive effect on your estate plan, sometimes in ways you may not have anticipated or wanted.

To ensure that your reverse mortgage fits your estate planning process, contact an attorney about how this plan can impact your case. While it can be a massive advantage for you depending on your plan, it can also Have devastating impacts that hurt you and your family. Read on to learn more about what to expect before seeking a reverse mortgage.

What Is a Reverse Mortgage? 

A reverse mortgage works in some ways like a traditional loan. The homeowner takes out a loan based on their personal needs, and they use their home as security for that loan. That gives you valuable income for those above retirement age or those who cannot work.

The difference for reverse mortgages is that the loan is only repaid after death. Often, this means that the lender will receive your house following your passing.

When you seek out a reverse mortgage, you can expect the cost of your loan to go up over time. That reduces your home equity, as it is used as a security for this loan. However, this reverse mortgage can give you the funds to cover any other debts, have an ongoing income, or even buy another home. 

These rules may be different if you are married and your spouse is a cosigner, or whether they are not eligible for a reverse mortgage and thus not on the paperwork. During estate planning, you may need to speak to an attorney to determine how this loan will impact your family, especially your spouse. 

What Happens to a Reverse Mortgage After Death?

Because a reverse mortgage uses your home as security, you often will lose your home after death. For many, this simplifies passing down a home after death or selling the home. However, that may not be right for your specific case, which is why it is so important to have a plan in place today.

For example, your children may want to live in the home they grew up in. In other cases, they may already have a home and do not want to go through the experience of selling yours. The details of your case depend on what you and your family want.

Options for Spousal Inheritance 

When building an estate plan, you may want to ensure your spouse inherits your home, giving them the home you have lived in and even the benefits of your reverse mortgage. That means they get the financial support they need throughout their lives. This is typically the option for those whose spouse is a co-borrower in their home. 

This may also be the case if your spouse was not originally eligible for the loan but is now eligible. For example, your spouse may have been under 62 at the time, which may have disqualified them from acting as co-borrowers. If they are eligible now under the requirements for a reverse mortgage, they may simply take up the same benefits and remain living in the same house. 

However, your spouse may still not qualify for reverse mortgage benefits. In these cases, they may have only three options: 

  • Buy the house 
  • Turn the house over to the lender 
  • Sell the house 

If you are unsure how a reverse mortgage will impact your spouse after your death, speak with an estate planning attorney to take action. Staying aware of what happens next is key to helping your spouse maintain your home if they plan to do so. 

What Happens When Someone Besides a Spouse Inherits the House? 

If you are unmarried or leaving other assets to a spouse and are considering leaving your home to other loved ones, such as your children, they may not be eligible to keep the reverse mortgage. While a spouse may have specific rules that allow them to keep it, these will not apply to your children or other family members.

When this happens, the balance for your loan will be due after your death, and they will typically need to pay it off as soon as possible.

Because of this, your children may be obligated to buy the house themselves, sell it, or simply turn the home over to the lender. Selling the house or turning it over allows them to pay off what otherwise removes themselves from the responsibility of the reverse mortgage. 

Because of this, families may not have many options to keep the home if they have a reverse mortgage and the home will not be going to a spouse. If you choose to apply for a reverse mortgage and are unaware of these things, it can be a nasty surprise to you and your children. 

How Can a Reverse Mortgage Impact Estate Planning? 

When completing your estate planning, your home is one of the most urgent and valuable assets you need to consider as you complete your plan. Taking the wrong steps can lead to trouble for your family that you may not have anticipated. 

Because a reverse mortgage can have positive or negative effects, depending on your family’s needs, it is important to understand exactly what a reverse mortgage can do to your estate plan and determine if those are the desired results.

If you are unsure how a reverse mortgage may impact your estate planning, contact an attorney to learn more about what you can expect before you sign anything.

Protection for Other Assets 

While your home may be your largest and most valuable asset, you may have other assets that can help provide for you in your retirement years. For example, you may have retirement savings, an investment account, or other options to support yourself financially. 

However, you may know that your family does not want the house and that other valuable assets may be of more use to them. In these cases, using your home equity to support yourself in retirement may protect other assets that may be more useful or meaningful to your family.

Your Family May Lose Your Home 

Keep in mind that, if you seek out a reverse mortgage, it can leave your family in a situation where they must buy the home they should have inherited or they may have to sell the house. However, for some families that may not be a problem.

For example, your family members may already have a house and are not interested in moving into yours. Selling the home and pocketing any equity remaining may provide the financial support you want to leave behind.

Knowing your family’s needs is vital at this point. Fortunately, you have time and resources with our firm to determine the best choices for your case, so that you can provide the future you want to leave for your family.

Moving Out of A Home Due to Disability

It is possible if you have to move out of the house for over a year due to disability, the loan could be called in. 

Talk to Your Lawyer About Reverse Mortgages 

For many people, a reverse mortgage can provide an income that allows you to use your home most. However, using your home as leverage can impact your estate plan. It may be the right or wrong choice for your family depending on what you are seeking and what you want to leave to your kids.

If you are unsure how your reverse mortgage will be paid off following your death, contact an estate planning attorney at the Germany Law Firm. Our lawyers can review your current assets and determine how your reverse mortgage will affect your family. From there, you can make a plan that meets your needs and gives your family the inheritance you want to leave behind.
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