A reverse mortgage is a special type of loan that allows homeowners to access their home equity and use it as an income stream. Rather than making payments to a lender, the homeowner receives monthly payments or a lump sum payment from the reverse mortgage company. This type of arrangement can provide supplemental income for eligible borrowers, but it’s important to understand how you might be affected if you’re marrying someone with a reverse mortgage.
- A reverse mortgage allows eligible homeowners to withdraw equity from their homes without having to make monthly payments back to a lender.
- Reverse mortgages that are subject to Federal Housing Administration (FHA) guidelines are called home equity conversion mortgages (HECMs).
- Marrying someone with a reverse mortgage can affect your ability to remain in the home later if your new spouse moves out or passes away.
- Buying a life insurance policy for the borrowing spouse could provide you with the funds to pay off a reverse mortgage should something happen to them.
Reverse Mortgage Basics
A reverse mortgage is a type of borrowing agreement in which a homeowner draws income against the equity in their home. Reverse mortgages can accrue interest and fees but no payment is due as long as the borrower uses the home as their primary residence. This is different from a home equity loan, which requires the borrower to make payments back to the lender over time.
Payment on the reverse mortgage balance would be required if the borrower:
- Sells the home
- Moves out of the home and no longer uses it as a principal residence
- Passes away
Reverse mortgage loans that follow Federal Housing Administration (FHA) guidelines are called home equity conversion mortgages (HECMs). HECMs have specific guidelines for eligibility that must be met. Generally, you may be able to get a home equity conversion mortgage if you:
- Are 62 or older
- Own your home outright or have paid down most of the mortgage
- Don’t owe any delinquent federal debt, such as taxes or student loans
- Have financial resources to pay for property taxes, homeowners’ insurance, maintenance and upkeep
- Use the property as your primary residence
- Complete a HUD-approved counseling session
As with any other type of home loan, lenders also consider credit scores, credit history and income for approval.
Reverse mortgages can be used for single-family homes as well as multi-family housing, including duplexes, triplexes, and quadplexes, as long as the borrower lives in one of the units.
Marrying Someone With a Reverse Mortgage
Marrying someone who has a reverse mortgage on their home can raise some important issues if you divorce later or your new spouse passes away. Specifically, your rights will depend on when the reverse mortgage was taken out and whether your name is on the reverse mortgage.
Assuming that the reverse mortgage is already in place when you tie the knot, you would not be listed as a co-borrower nor would you be included as a non-borrower spouse. This means that while you might inherit the property when your spouse passes away, you would be responsible for paying off the reverse mortgage balance if you want to keep the home.
This payment would be due in full. If you don’t have cash assets available to pay the balance, you could do one of three things:
- Take out a reverse mortgage of your own and use the proceeds to pay off the existing reverse mortgage.
- Refinance the reverse mortgage into a conventional mortgage loan in your name only.
- Sell the home and use the proceeds to clear the debt.
If you’re interested in remaining in the home, then you’d have to consider whether it makes more sense to get a reverse mortgage of your own or refinance the existing debt into a conventional mortgage.
On the pro side, either one would allow you to remain in the home. But you’d have to decide whether you want to pay off the debt now, in the form of mortgage payments, or leave the debt for your heirs (or your spouse’s) to deal with later. Refinancing a reverse mortgage to a new home loan means you’ll have payments to make during your lifetime. Whether that’s feasible or not can depend on the entirety of your financial situation.
If you divorce, your rights would depend on whether you’re listed on the home’s title. In that case, your spouse would be considered the sole property owner and as long as they plan to remain in the home they’d be responsible for the reverse mortgage.
Life Insurance for Reverse Mortgages
If you’re marrying someone with a reverse mortgage in place already, then you might be able to create some financial protection for yourself by purchasing a life insurance policy. Specifically, you could get a policy for your spouse that would be enough to pay off the reverse mortgage balance if something were to happen to them. This would ensure that you’d be able to stay in the home.
When comparing life insurance options, consider whether term or permanent life insurance makes more sense and what you might pay for either one based on your spouse’s age and health status. Term life insurance is typically the cheaper of the two but premium costs may still be high for someone in their 60s or 70s. Also, consider whether your spouse has any preexisting conditions that might affect the type of coverage they qualify for.
What Happens to the Spouse of a Reverse Mortgage Borrower Who Dies?
Spouses may have the right to remain in the home if the borrower passes away, as long as they were already married when the reverse mortgage was taken out. Otherwise, spouses who married someone with an existing reverse mortgage would have to pay off the balance due in order to remain in the home after the borrower’s death.
Can Borrowers Lose Their Home With a Reverse Mortgage?
A borrower can lose their home with a reverse mortgage if they no longer use it as a primary residence. This can happen if they move into a second home they own or have to move into a nursing care facility permanently. In either case, the full reverse mortgage balance would need to be paid to avoid foreclosure.
Can Heirs Walk Away From a Reverse Mortgage?
Heirs who inherit a home with a reverse mortgage, including spouses, are responsible for paying off the balance due if the borrower passes away. The exception would be for spouses who inherit a property and are listed as co-borrowers on the reverse mortgage or eligible non-borrower spouses.
The Bottom Line
Reverse mortgages can be used to supplement retirement income but there are some important rules to understand, particularly if you’re marrying someone who has a reverse mortgage. Talking to an estate planning attorney may be a good idea for newly married or soon-to-be married couples who are concerned about what would happen to the home if the borrower passes away.