What Happens to My Equity When I Die if I Have a Reverse Mortgage
One of the biggest questions I get from my prospective reverse mortgage customers centers around what happens to the home and more importantly the homes equity after death.
A reverse mortgage lender loans money, typically anywhere from 50% to 75% of homes value, to the borrower. The borrower uses that money as he or she sees fit.
Where the lender makes money is on the accumulation of interest on top of the money which is loaned to the borrower. When the home is sold, many times at death of the borrower, the bank is repaid.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
In the circumstance the borrower passes away the home is willed to the estate. The bank gives the estate about twelve months to get the home sold.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
When the home finally sells the reverse mortgage lender harvests its investment. They get the loan plus interest and nothing more.
Any remaining equity goes to the borrower's estate. The myth abounds in the senior community that the bank is entitled to this money.
From time to time a senior lives far longer than expected and the mortgage amount is greater than the sale price of the home. If this is the case, no worries for the borrower or heirs.
The HECM or reverse mortgage is a non-recourse mortgage. This means the most the bank is entitled to receive is the sale price of the home minus closing costs. If more is owed, too bad for the bank.
These mortgages are pretty safe bets for the borrower and the borrowers heirs.
A reverse mortgage lender loans money, typically anywhere from 50% to 75% of homes value, to the borrower. The borrower uses that money as he or she sees fit.
Where the lender makes money is on the accumulation of interest on top of the money which is loaned to the borrower. When the home is sold, many times at death of the borrower, the bank is repaid.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
In the circumstance the borrower passes away the home is willed to the estate. The bank gives the estate about twelve months to get the home sold.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
When the home finally sells the reverse mortgage lender harvests its investment. They get the loan plus interest and nothing more.
Any remaining equity goes to the borrower's estate. The myth abounds in the senior community that the bank is entitled to this money.
From time to time a senior lives far longer than expected and the mortgage amount is greater than the sale price of the home. If this is the case, no worries for the borrower or heirs.
The HECM or reverse mortgage is a non-recourse mortgage. This means the most the bank is entitled to receive is the sale price of the home minus closing costs. If more is owed, too bad for the bank.
These mortgages are pretty safe bets for the borrower and the borrowers heirs.
About the Author:
Get the low down in an excellent guide to the HECM in California, also known as a reverse mortgage, here. Many questions answered regarding the California reverse mortgage in this educational site.
posted by Credit Counseling at
8:57 AM
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