Floods and Reverse Mortgages

If you have significant equity in your home, a reverse mortgage is a popular way to access money in later years to help support your living expenses. Having a reverse mortgage requires you to keep the property in good repair; otherwise, the balance of the loan becomes due.

So what happens with your reverse mortgage if your home is damaged in a flood?

Key Takeaways

  • If you live in a federally designated flood zone and your reverse mortgage is federally backed, you’re required to have flood insurance through the National Flood Insurance Program (NFIP).
  • Even if you’re not required to have flood insurance, you should still strongly consider it so your home can be repaired and your reverse mortgage doesn’t become due after a disaster.  
  • If you do not have flood insurance and your home is badly damaged, your reverse mortgage will become due. If you can’t afford to pay it off, then you could lose your home to foreclosure.
  • If you can’t afford repairs after a flood and if a disaster has been declared, then the Federal Emergency Management Agency (FEMA) may be able to help.

What Is a Reverse Mortgage?

A reverse mortgage is a type of mortgage for individuals who are age 62 or older and have significant equity in their homes. Unlike a traditional mortgage, you do not have to make payments on your reverse mortgage until you move away or die. Importantly, your reverse mortgage will become due if you fail to keep the property in good repair or don’t keep up with insurance coverage and property taxes. If your reverse mortgage comes due and you lack the money to pay it off, you will go into foreclosure.

Insurance Coverage and Reverse Mortgages

When you have a reverse mortgage, you must meet certain requirements because the reverse mortgage is secured using your home as collateral. Notably, you must stay current on your homeowners insurance premiums and must keep the home in good repair. If your home becomes damaged significantly in a flood, you’ll need to repair it quickly or your reverse mortgage becomes due.

16.2 Million

The projected number of U.S. homes at risk of substantial flooding by 2050 as a result of climate change.

Reverse Mortgages with Flood Insurance Coverage

Reverse mortgages, due to their complexity and the age of the population whom they serve, are prone to scams and unscrupulous lenders. If you live in a designated flood zone and flood insurance is required for your home equity conversion mortgage (HECM), it’s best to make sure that you have adequate coverage by doing your due diligence.

You could be at risk of defaulting on your reverse mortgage if you don’t have or maintain flood insurance and were required to. Be sure to look up your address on FEMA’s Flood Map Service Center to see if you live in a designated flood zone. If you do but you don’t have flood insurance, be sure to get it right away.

Even if you aren’t required to have flood insurance, you should strongly consider getting it, as 100-year floods are becoming more common. Without flood insurance, your reverse mortgage will become due if your home is damaged in a flood. In that case, you will have to depend on assistance from local organizations, charities, and FEMA to try to remain in your home and avoid defaulting on your reverse mortgage.

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

If your home is damaged in a flood and it gets repaired, then your reverse mortgage will not become due. If your home is damaged in a flood and you don’t have insurance or can’t afford to pay for repairs, then your reverse mortgage will become due.

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

Paying for housing after your home has been damaged in a flood can be tricky while you wait for repairs. If your flood insurance has loss-of-use coverage, you can have temporary housing and other expenses reimbursed by your insurance. If you don’t have coverage and a disaster has been declared in your area, the Federal Emergency Management Agency (FEMA) can help you access temporary emergency housing. Your local aging services organization also may be able to help you find and pay for housing.

Can I get help from FEMA after my home is damaged in a flood?

Yes, once a disaster has been declared by FEMA, you can get help with temporary food, housing, medical care, and grants to repair your home if you don’t have adequate insurance coverage.

The Bottom Line

As floods become more common and more severe, everyone with a reverse mortgage should strongly consider getting flood coverage if they live on a 100-year flood plain. Without coverage, you are on the hook for repairing your home and will default on your reverse mortgage if you can’t afford to repair it.

Article Sources

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  1. Consumer Financial Protection Bureau. “What Are My Responsibilities as a Reverse Mortgage Loan Borrower?

  2. Federal Emergency Management Agency. “Flood Insurance.”

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

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

  5. First Street Foundation. “First Street Foundation Releases New Data Disclosing Flood Risk of Every U.S. Home.”

  6. Federal Bureau of Investigation, via Internet Archive. “Reverse Mortgage Scams.”

  7. Consumer Financial Protection Bureau. “Your Reverse Mortgage After a Natural Disaster.”

  8. Federal Emergency Management Agency. “FEMA Flood Map Service Center.”

  9. Yale Environment 360, Yale School of the Environment. “100-Year Floods Could Soon Happen Annually in Parts of U.S., Study Finds.”

  10. U.S. Department of Health and Human Services, Administration for Community Living. “Older Americans Act.”