Reverse mortgages are a popular way for retirees without savings but with significant equity in their homes to access money when they are no longer able to work. Reverse mortgages are based on your home’s value, so what happens if your home is damaged in an earthquake?
- Most homeowners insurance coverage does not include earthquake insurance.
- If you live in an area prone to earthquakes and you have a reverse mortgage, you should strongly consider getting earthquake coverage.
- If you do not have earthquake coverage and your home is badly damaged, your reverse mortgage will become due. If you can’t afford to pay it off, you could lose your home to foreclosure.
- If you can’t afford repairs after an earthquake and a disaster has been declared by the Federal Emergency Management Agency (FEMA), then FEMA may be able to help.
How a Reverse Mortgage Works
A reverse mortgage is a type of mortgage for individuals age 62 or older who have significant equity in their homes. Unlike a traditional mortgage, you do not have to make payments on your reverse mortgage until you pass away or move. Notably, if you fail to keep the property in good repair or don’t keep up with insurance coverage and property taxes, your reverse mortgage becomes due. If you don’t have the money to pay off your reverse mortgage, you will go into foreclosure.
Insurance Coverage and Reverse Mortgages
Reverse mortgages are based on using your home as collateral for the loan. Because of this, you are required to keep your home in good repair and remain current on your homeowners insurance premiums. Most homeowners insurance policies do not include earthquake insurance, so if you experience an earthquake and have a reverse mortgage, you may find yourself in trouble.
The estimated annual cost of earthquakes in building stock losses in the United States
Reverse Mortgages with Earthquake Insurance Coverage
If you have an earthquake insurance policy or a rider on your existing insurance policy and your home is damaged, you should be able to have your home repaired or rebuilt without your reverse mortgage becoming due. Your lender will need certain documentation completed, so contact them right away if you are able to.
Reverse Mortgages without Earthquake Insurance Coverage
If you do not have earthquake insurance coverage and your home is damaged in an earthquake, your reverse mortgage becomes due because your home is no longer considered in good repair. If your loan becomes due, you must appeal your notice of default by following the instructions in your letter.
Areas that are hit by earthquakes severe enough to damage your home usually are declared a disaster by the Federal Emergency Management Agency (FEMA). If this happens, you will have grants available to you to help repair your home, allowing you to stay in it without having to pay off your reverse mortgage. Your local area should have an aging services organization to help you navigate the process, which you can reach by calling (800) 677-1116 or visiting the Eldercare website.
Will my reverse mortgage become due if my house is damaged in an earthquake?
If your home is damaged by an earthquake and you don’t have earthquake insurance, then your reverse mortgage will become due if the home remains in poor repair. If your home is damaged in an earthquake and you have either adequate insurance or the money to repair your home, or you receive assistance through either the Federal Emergency Management Agency (FEMA) or a local program or charity, then your reverse mortgage will not become due.
How will I pay for housing if my home is damaged in an earthquake?
If your home is damaged in an earthquake and is no longer habitable, you have several options for housing. If your homeowners insurance has loss-of-use coverage, your insurance company can reimburse you for housing up to certain limits. Be aware that loss of use as a result of an earthquake may be excluded, so review your coverage with your insurance agent for your specific coverage limits and exclusions. If you can’t get housing reimbursed by your insurance and don’t have the money to pay for housing out of pocket, FEMA can help you secure and pay for temporary housing if FEMA has declared a disaster. If a disaster hasn’t been declared, contact your local aging services organization.
Will FEMA help if my home is damaged in an earthquake?
Yes, you may be able to get assistance if FEMA has declared a disaster in your area. By declaring a disaster, teams are mobilized to an area to provide assistance applying for temporary housing, as well as federal grants to fund repairs to your home to make it safe, sanitary, and functional.
The Bottom Line
If you have a reverse mortgage and you live in an area likely to be affected by an earthquake, you should strongly consider getting earthquake insurance. If you have it, you can rest assured knowing that your home will be repaired and your loan balance will not suddenly become due. If you don’t have earthquake insurance, you could lose your home to foreclosure if you can’t get assistance from FEMA or local charities to repair your home and don’t have the funds to do it yourself.