Can Heirs Refinance the Market Value of a Reverse Mortgage?

A reverse mortgage, also called a home equity conversion mortgage, or HECM, is typically an FHA-insured loan against the equity in your home. Equity is the difference between a propertys value and any debts owed against it. With an HECM, the lender loans you money, and you retain title to the property without being required to make monthly mortgage payments. Upon your death, your heirs can refinance the market value of a reverse mortgage or pay off the loan balance and keep the remainder.

Eligibility

American homeowners are required to be at least 62 years old to qualify for an HECM. The reverse mortgage was designed to assist senior citizen or cash-poor homeowners, with typically no repayment required until after the borrowers death. The tax-free money loaned may be taken in a lump sum or distributed in monthly payments. To qualify, you must reside in the home as your primary residence, and the home must be a minimum of one year old and sufficiently meet HUDs minimum standards.

Repayment

Repayment of a reverse mortgage becomes due in full when the property is sold, when the borrower moves and does not live in the home for 12 months, if the borrower defaults on the mortgage terms or if the last surviving borrower dies. When you die, the lender takes ownership of the home and sells it to repay your loan. However, even with an HECM, your property can be included as part of your estate for your heirs. In your reverse mortgage contract, it should tell you how much time your estate will have to reclaim your property. The lender may allow heirs up to six months or as little as 60 days to pay the reverse mortgage in full before placing the property on the market.

Options

In the event of your death, your heirs have the option to refinance the market value of the reverse mortgage into a traditional mortgage loan and keep the property, or they can sell the home to repay the mortgage balance and keep any remaining amount. A new appraisal will be necessary to determine the propertys current fair market value. If the home turns out to be worth less than the reverse mortgage balance, your heirs will not have to make up the difference, as long as your reverse mortgage is FHA-insured. The lender simply takes possession and sells the home. However, if your heirs wish to retain ownership of the home, they will have to refinance for the entire mortgage amount.

Selling

If the lender sells your home and there is more equity in the property than the balance due on your reverse mortgage, your heirs inherit the leftover equity. If, however, the sale of the property brings in less than what is owed, the lender takes the loss and requests to be reimbursed by the FHA . Other assets contained within your estate, such as investments, cars, jewelry or a second home, cannot be seized by the lender to pay off your reverse mortgage.

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