Reverse Mortgages: What Happens If My Spouse Passes Away?

A reverse mortgage was initially attractive to me because it allowed me to leverage the equity on my home.  Plus, it was a great way to generate cash each month because the bank makes payments to me.  

I’ve had an opportunity to talk to many of you via email since starting my blog.  I recently received an email with a very interesting topic: what happens if we have a reverse mortgage, and I outlive my spouse?  This was sent in by a reader named Dianne.

This is a wonderful question, and if you have the same question as Dianne, you are doing your due diligence and thinking this thing all the way through.  Let’s tackle Dianne’s question…

To set things up, Dianne is 53, and her husband Roger is 65.  They have been married for 35 years.  For their reverse mortgage, only Roger qualified because of his age (borrower’s must be at least 55 years old).  So Dianne is what’s called a “non-borrowing spouse”.  

A “non-borrowing spouse” is a spouse who is part of the loan, but is not 55 years old.  This has some borrowing implications, because the amount of the loan is based on the age of the youngest borrower - even if they are not 62 years old.  

So what happens if Roger passes away?  Dianne has a few options.  First, it’s important to know that the Department of Housing and Urban Development (HUD) passed a rule in 2014 that provides some protection to the surviving spouse.  The bank cannot simply ask Dianne to repay the loan immediately.  This protection from HUD allows Dianne to stay in the house as long as she proves that she has a legal right to be there within 90 days (like an ownership document or lease).  

Dianne would then have to fulfill the other requirements of the reverse mortgage like keeping the property in good condition, and continuing to pay her property taxes and homeowners insurance.  Since she is a “non-borrowing spouse”, she would not be able to access any additional funds from the reverse mortgage.  Remember, a reverse mortgage is a loan.

If you are in a situation like Dianne’s, you could do a few things as well.  

• When Dianne turns 55, she and Roger could refinance with another reverse mortgage
• If Roger passes away and Dianne is 55, Dianne could refinance the home with a reverse mortgage
• If Roger passes away and Dianne is 55, Dianne could sell the home and re-pay the reverse mortgage

A reverse mortgage may be a way for you increase your cash flow after you retire, presuming that you have considerable equity in your home, and you are at least 55 years old.  If you are married, there is certainly some homework that you might want to do to figure out what’s best for you and your spouse.  If you’d like to learn a bit more about reverse mortgages and marriage, please read this blog post [insert link - how much can I borrow for a reverse mortgage].