What happens to a reverse mortgage when the borrower dies, and do the heirs have to pay it back?
The short answer
The loan becomes due, but heirs don't pay it out of their own pockets. On an FHA-insured HECM, they can keep the home by paying off the loan for the lesser of the balance or 95% of the appraised value, sell it and keep any equity left over, or hand the keys back. They'll never owe more than the home is worth. The Mortgage Advisory walks families through these options before and after.
What happens first?
When the last borrower passes away, the servicer sends the heirs a letter saying the loan is due and payable. Heirs should respond quickly and tell the servicer what they plan to do.
What are the heirs' options?
- Keep the home: pay off the loan, usually with a new mortgage or other funds. On a HECM, heirs can pay the lesser of the loan balance or 95% of the home's appraised value.
- Sell the home: pay off the loan from the sale and keep any equity left over.
- Walk away: if the home is worth less than the loan, heirs can hand it back through a deed in lieu of foreclosure. On a HECM, FHA insurance covers the shortfall, and heirs never owe the difference.
How long do heirs have?
On a HECM, heirs generally have 30 days to respond and about 6 months to sell or refinance, with possible extensions (often up to two 90-day extensions) if they're actively working on a sale or payoff. Stay in touch with the servicer; silence is what causes problems.
Is it different for jumbo or second-lien reverse mortgages?
These aren't FHA-insured HECMs, so the payoff rules and timelines come from the loan documents. Many are also non-recourse, but read the terms, and I'll help you check them.
Example scenario (illustrative)
A widower in San Antonio passes away with a HECM balance of $210,000 on a home appraised at $380,000. His two children sell the home, pay off the loan from the sale, and split the roughly $150,000 left after selling costs. They never paid a dime out of pocket.
Our take
A reverse mortgage doesn't take the house from your family. It's a loan that gets paid off when the home is sold or refinanced, just like any mortgage. I always encourage borrowers to bring their kids to the first conversation, so nobody is surprised later.
Sources
Ace Ausar, Mortgage Banker · NMLS #1143018
The Mortgage Advisory, Inc. · NMLS #1549739
Reviewed by Ace Ausar, NMLS #1143018 · Updated
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