One of the most important questions that a lot of people have in regards to a reverse mortgage is “what happens to the home when I pass away?” Many people assume that the bank simply takes the home or even that the title is held in the banks name. That is not correct. First of all, the title on a reverse mortgage is never in the banks name. The borrower retains title just as they would with any traditional home mortgage. As to the concern of if you give the lender the home once the last borrower dies, that only happens if the loan amount is greater than the value of the property (ie, you’re upside down). With a reverse mortgage the loan amount slowly grows over time because there are no payments due. Thus, sometimes the loan amount can eclipse the value of the home depending on how much of their equity the borrower takes out and how long they live in the home. More times than not, there is equity left in the home however.
Whether or not there is equity left in the home, the relatives left in charge once the borrower(s) passes will have the ability to refinance out of the loan in order to keep the home in the family if that is desired. If there is equity left they can also sell the home and pay the bank what is owed and keep what’s left over for the estate. This is what most commonly happens. There are some states where it is wise to have a trust put in place as well due to probate laws. Once the borrower passes away the family has up to 12 payment free months to either sell or refi. In states like California where there are strict probate rules – if there is not a living trust in place the estate must got to probate to decide who has rights to sell or refinance the home. That process can take up to 8 months leaving the family with 4 or even less payment free months in some cases. It’s always a good idea to check your states laws in regards to estate law.
A reverse mortgage is a great loan when used properly. The best weapon for your arsenal as a borrower, spouse or relative is knowledge. A good loan officer is always happy to educate regardless of if they get the business. I personally love to educate and obviously do so free of charge. When done correctly, a reverse mortgage is a safe and practical retirement tool and can be utilized for almost anything. As I always say though, rules are constantly changing so if you are interested in more info about anything regarding reverse it’s always a good time to call toll-free 1.800.598.6265 and find out more.