A reverse mortgage is a loan insured by the federal government that gives owners cash payments every month based on how much equity they have built up in their house. While this could be a very useful financial tool for retirees needing extra income, it could likewise come with complications for whoever inherits the house upon the death of the original owner.
Why? Basically, the inheritor would be legally responsible for the balance of the reverse mortgage, plus interest, regardless of whether they’re planning to live in the house. So, what options do you have if you inherit a house under a reverse mortgage program? Primary Residential Mortgage, Inc. notes that you could choose from the following options:
- You could put the house on the market and use the proceeds of the sale to repay the mortgage. In case the value of the house is higher than the balance of the mortgage, you could use the leftover proceeds at your own discretion. But if the mortgage balance exceeds the equity value of the house, you would need to pay the home’s real value.
- You could continue paying off the mortgage so you could use the house. However, unless you inherited a substantial amount of cash with the property, you would still be liable for paying off the loan balance.
- You could likewise deed the house back to the reverse mortgage lender. By doing this, the lender would become the home’s owner and you would be relieved of any financial responsibility for the property.
- You could also just walk away and do nothing. However, if your lender forecloses on the house and sells it at an auction, the estate of property owner could still be held responsible for paying off the loan balance.
If you ever become an inheritor of a reverse mortgage, remember that you have rights. For instance, when an owner of a reverse mortgage passes away, the lender should notify the beneficiaries about the loan. The beneficiaries would then have 30 days to determine what they want to do with the property.
If you decide to repay the mortgage or sell the house, you also get another six months to close the transaction. Knowing your rights could help you make more informed decisions with regards to dealing with the reverse mortgage you inherited.