A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, is a nonrecourse loan. This means that if your home is sold to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less. In addition, the lender cannot go after the remainder of the estate or your heirs’ other assets to repay the debt.
There are certain triggers that cause a HECM reverse mortgage loan to become due. The most common triggers are when the last borrower on title passes away or when the borrower moves out of the home.
When one of these events occurs, the heirs have a few options for repaying the loan. They can keep the home, sell the home or turn the keys over to the lender (otherwise known as a deed in lieu of foreclosure).
When the home is worth more than the loan balance:
- If the heirs want to keep the house, then they need to pay the loan balance in full.
- If the heirs sell the house, they can keep any remaining equity above the loan balance.
When the home value has declined and the value is less than the loan balance:
- If the heirs want to keep the home, they will have to pay 95% of the current market value of the home.
- If the heirs sell the house, they will not owe more than the value of the home.
It’s also important for your heirs to know that they have six months to pay the loan off. However, they may be able to request an extension if they can show evidence that they’re arranging financing to keep the house or actively trying to sell the property. It’s in the heir’s best interest to settle the loan as quickly as possible since interest and mortgage insurance premium will continue to accrue until the loan is paid off.
If you or someone you know is interested in learning more about a reverse mortgage please call us toll free at 866.751.6105.