Fires and Reverse Mortgages

When seniors in retirement find themselves in need of cash and have a lot of equity in their homes, they frequently turn to a reverse mortgage. What many of them don’t realize is that their reverse mortgage becomes due if their property is no longer in good repair.

So what happens to their reverse mortgage when the property is damaged in a fire?

Key Takeaways

  • You’re required to maintain property insurance or your reverse mortgage becomes due.
  • You must keep the property in good repair or your reverse mortgage becomes due.
  • If your home is damaged in a fire, your insurance company will repair your home and your balance will not be due.
  • If you don’t have insurance, you may not be able to repair your property and may lose your home to foreclosure.

What Is a Reverse Mortgage?

A reverse mortgage differs significantly from a traditional forward mortgage. Reverse mortgages are specifically designed for retirees who own their homes or have very little remaining on their mortgages. They allow the borrower to take out a loan using the equity that they have in their home as collateral. The reverse mortgage only becomes due if the borrower moves, dies, or fails to keep the property in good repair with active homeowners insurance coverage.

Insurance Coverage and Reverse Mortgages

By having a reverse mortgage, you are required to keep homeowners insurance active on your home to protect the lender’s investment.

1,291,500

The number of fires in the United States in 2019, the last year with published data.

Reverse Mortgages with Insurance

If you have adequate insurance on your home and your home is damaged in a wildfire, then your home will be repaired and your reverse mortgage will not become due. Be sure to go over your coverage limits with your insurance agent to make sure that you have sufficient coverage to repair your home in the event of a fire.

With today’s extremely high construction and materials costs, insurance coverage often isn’t high enough to replace a home. Many homeowners found this out the hard way after the Marshall Fire of December 2021 burned more than 1,000 homes in Boulder County, Colo. If any of those victims have a reverse mortgage, they will have a hard time with their lender if they can’t get their home repaired quickly as a result of insufficient coverage.

Reverse Mortgages with No or Inadequate Insurance

Reverse mortgages require you to stay current on your property insurance. If you have no property insurance, your reverse mortgage will become due regardless of whether your home is damaged in a fire. If this happens, you will receive a notice of default, which usually gives you certain appeal rights and a timeline to remedy the issue.

If your coverage is inadequate to repair or replace your home, you still may have options. Reach out to your local Aging Services organization to get referrals to local programs that specifically have grants in place for helping seniors repair their homes. 

If your home has been damaged in a wildfire, you’ll have more options available to you, especially if a disaster has been declared by the Federal Emergency Management Agency (FEMA). Once a disaster has been declared, FEMA has funds available to affected homeowners to repair and replace what their homeowners insurance coverage doesn’t. FEMA also may be able to help with temporary housing expenses.

Will my reverse mortgage become due if my house is damaged in a fire?

If your home is damaged in a fire, your reverse mortgage will not become due as long as your home gets repaired. However, if your home is not repaired due to a lack of adequate insurance coverage, your reverse mortgage will become due.

How will I pay for housing if my home is damaged in a fire?

If your home is damaged in a fire, paying for housing will depend on your insurance coverage.  If your homeowners insurance has loss-of-use coverage, you can get financial assistance to pay for temporary housing and necessities like toiletries from your insurance. If you don’t have coverage, your local Aging Services organization may be able to help you secure housing.

Will the Federal Emergency Management Agency (FEMA) help after my home is damaged in a fire?

If your home is damaged in a normal house fire, you won’t be able to get help from the Federal Emergency Management Agency (FEMA).  However, if your home was damaged in a wildfire that was declared a disaster by FEMA, you can get access to grants to repair your home, help with locating and securing temporary housing, and help with other needs such as medical care.

The Bottom Line

Surviving fire damage to your home is traumatic. Make sure that you have adequate insurance coverage to repair your home in the event of the worst, especially if you have a reverse mortgage. If you don’t have sufficient coverage, you’ll have to depend on assistance from local agencies to help you repair and remain in your home.

Article Sources

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  1. U.S. Department of Housing and Urban Development. “How the HECM Program Works.”

  2. U.S. Fire Administration. “U.S. Fire Statistics.”

  3. Boulder County. “Marshall Fire Recovery: Insurance.”

  4. Consumer Financial Protection Bureau. “What Should I Do If I Have a Reverse Mortgage Loan and I Received a Notice of Default or Foreclosure?

  5. Federal Emergency Management Agency. “Assistance for Housing and Other Needs.”