Unfortunately, there is a lot of misinformation out there about reverse mortgages. Reverse mortgages can be an excellent solution for seniors who have equity in their homes and live on extremely limited incomes. This article is not intended to educate the reader on whether a reverse mortgage is the right choice for your particular situation.
The purpose of this article is to talk about the options when your spouse has passed away and you are currently living in a home with a reverse mortgage. The first piece of good news to the surviving spouse is that as long as you are living in your home, the reverse mortgage will not become due and payable. Even if your spouse suffered a lengthy illness prior to passing away and resided in a skilled nursing center, as long as the surviving spouse remained in the home, the reverse mortgage will not become due and payable.
One of the benefits of the reverse mortgage is that the surviving spouse is not required to make any payments to the reverse mortgage company while living in the home. This can be very meaningful from a cash flow perspective, because social security and pension benefits may be significantly reduced after the spouse passes away. See articles written on Social Security Benefits in other blog postings.
However, let’s now look forward and see what options the surviving spouse might have if they do not wish to live in the home any longer.
- Sell The House – the surviving spouse might wish to downsize and move into a smaller home or senior living community. There are two possible scenarios:
- House Value exceeds the Reverse Mortgage Balance – if the value of the home is greater than the balance of the reverse mortgage, the reverse mortgage would be paid off with proceeds from the sale. Anything left over after the closing costs were paid would be money available to the surviving spouse. This money could be used to purchase a new home or invest in a senior community apartment.
- House Value is lower than the Reverse Mortgage Balance – if the home is “under water,” in other words, the home will not sell for enough money to pay off the reverse mortgage, the surviving spouse will not have to come up with additional proceeds to pay off the balance due. The reverse mortgage lender will take a loss on the mortgage and seek reimbursement from their insurance providers. The reverse mortgage company cannot come after any other assets of the surviving spouse.
Homeowners are not stuck in their homes because they have a reverse mortgage. They might not recover any cash from the sale of their property, but unlike a traditional mortgagee, they will not have to come up with additional funds if the house is not worth enough to pay off the reverse mortgage.
Reba Rogers, CPA, is the founder of Secure Aging, a group of care managers who preserve the independence and protect the assets of seniors by helping them with financial management. She is also a Director Consultant for BNI (Business Network International), a referral marketing organization which gives her access to many trusted business professionals in the community.
