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 who has 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 who has 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 principal 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 does one of the following things:
- Sells the home
- No longer lives in it as a principal residence
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 can get a HECM if you meet all of the following requirements:
- Are age 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 U.S. Department of Housing and Urban Development (HUD)-approved counseling session
As with any other type of home loan, lenders also consider credit scores, credit history, and annual income for approval.
Reverse mortgages are not just for single-family homes. They also can be used for multifamily housing, including duplexes, triplexes, and quadplexes, as long as the borrower lives in one of the units.
Marrying Someone Who Has 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. As the reverse mortgage was already in place when you tied the knot, you would neither be listed as a co-borrowing spouse nor included as an eligible non-borrowing 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, and the 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:
- Refinance the reverse mortgage into a conventional mortgage loan in your name only.
- Take out a reverse mortgage of your own and use the proceeds to pay off the existing reverse mortgage.
- Sell the home and use the proceeds to clear the debt.
If you’re interested in remaining in the home, you would have to consider which of the first two options makes more sense for your financial situation. Should you pay off the debt now, in the form of mortgage payments? Or should you leave the debt for your heirs (or your spouse’s heirs) to deal with later?
Remember that refinancing a reverse mortgage to a new home loan means that you’ll have payments to make during your lifetime. Is that something you can afford? If you try but fail, you’ll end up losing the home that way.
If you get a divorce, and you’re granted the home as part of your settlement, then you and your former spouse would need to work out the issue of how the reverse mortgage balance is to be paid and by whom.
Life Insurance for Reverse Mortgages
If you’re marrying someone who has a reverse mortgage already in place, 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 would 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 the cost of premiums 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 for which they qualify.
Getting life insurance quotes online can make it easier to compare the potential costs of insuring a spouse who has a reverse mortgage.
What Happens to the Spouse When a Reverse Mortgage Borrower Dies?
Spouses may have the right to remain in the home if the borrower dies, as long as they were already married when the reverse mortgage was taken out. Spouses who married someone who already had an existing reverse mortgage would have to pay off the balance due to remain in the home after the borrower’s death.
Can Borrowers Lose Their Home With a Reverse Mortgage?
Yes, if they no longer use it as a principal residence. This can happen if they move into a second home that 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 a co-borrower on the reverse mortgage or who qualify as an eligible non-borrowing spouse, which means that they were married to the borrower when the reverse mortgage was taken out but were too young to be a co-borrower at the time.
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 already 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.