A reverse mortgage is a financial tool that allows homeowners to access their home’s equity while continuing to live in their property. Although it provides financial flexibility, many homeowners and their families often wonder what happens when the borrower passes away. Understanding the process in advance can help make the transition smoother and less stressful.
How a Reverse Mortgage Works
A reverse mortgage in Charleston SC allows homeowners to borrow against their home equity without making monthly mortgage payments. Instead, the loan balance grows over time and only becomes due when a triggering event occurs. These maturity events include:
- The passing of the last surviving borrower
- Selling the home
- Moving out permanently
- Failing to pay property taxes, homeowners’ insurance, or association dues
- Neglecting home maintenance, leading to serious damage
Once any of these events take place, the loan must be repaid. At this point, the borrower’s heirs will need to decide what to do with the property.
What Heirs Need to Do After a Reverse Mortgage Becomes Due
When the last borrower passes away, the heirs should contact the loan servicer right away. The next steps will depend on whether they want to keep the home or let it go.
Options for Heirs Who Do Not Want to Keep the Home
1. Selling the Home
If the home’s value is higher than the outstanding loan balance, selling the property can be a great option. After selling, the loan is repaid, and the heirs can keep any remaining home equity. Typically, they have up to six months to sell the home, but extensions may be granted if needed.
2. Signing a Deed-in-Lieu of Foreclosure
Sometimes, the loan balance is greater than the home’s current market value. When this happens, selling may not make financial sense. Instead, heirs may sign a document called deed-in-lieu of foreclosure, letting them to transfer the property to the lender without any financial responsibility. Since a reverse mortgage in Charleston SC is a non-recourse loan, heirs are never required to pay the difference between the loan balance and the home’s value.
Options for Heirs Who Want to Keep the Home
1. Paying Off the Loan Balance
Heirs who want to retain the home must pay off the loan. If the home is worth more than the loan balance, they can simply pay the full amount owed. Often, this means refinancing with a traditional mortgage or using personal funds.
2. Using the 95% Rule
When the home is worth less than the loan balance, heirs can still keep the property by paying only 95% of its appraised value. This option ensures they are not burdened with the full loan amount if it exceeds the home’s market worth.
What Happens to a Non-Borrowing Spouse?
If a non-borrowing spouse remains in the home after the borrower passes away, they may have certain protections. To qualify, they must:
- Have been married to the borrower when the reverse mortgage was taken out
- Continue living in the home as their primary residence
- Stay current on property taxes, homeowners’ insurance, and general home maintenance
During this period, called the deferral period, the loan does not need to be repaid until the non-borrowing spouse moves out or passes away.
Why Planning Ahead for a Reverse Mortgage Matters
While discussing what happens after a homeowner passes away is never easy, planning ahead with experts like South Carolina Reverse Mortgage Services helps prevent confusion and financial stress. Homeowners with a reverse mortgage should communicate their wishes to their family, outline potential solutions in their estate plan, and ensure heirs understand their options.
Understanding how a reverse mortgage works after the borrower’s passing is essential for homeowners and their families. If you need expert advice or have questions about the process, call South Carolina Reverse Mortgage Services today. Get the information you need to make the best decision for your future!