If your spouse took out a reverse mortgage and you aren’t on the loan—or if you know someone in this situation—you need to understand what rights you have and what rights you lack. Reverse mortgage laws for non-borrowing spouses can be confusing, but they determine whether or not the spouse can continue to live in the home and receive reverse mortgage proceeds if the borrowing spouse dies or moves out.
- If your spouse is a borrower on a reverse mortgage and you are not, you need to know whether you’re an eligible or ineligible non-borrowing spouse.
- Ineligible non-borrowing spouses are at risk of losing the ability to live in the home on which their spouse carries a reverse mortgage.
- Both eligible and ineligible non-borrowing spouses are at risk of losing access to reverse mortgage proceeds.
- If your spouse is still alive and living in the home, it may not be too late to protect yourself.
The rules described in this article apply to the home equity conversion mortgage (HECM), which is the most common type of reverse mortgage and the only one insured by the Federal Housing Administration (FHA). If you have a different type of reverse mortgage, these protections may not apply. Review your mortgage contract and seek help from a real estate attorney, an elder law attorney, or a HECM housing counselor approved by the U.S. Department of Housing and Urban Development (HUD) if you have concerns.
Why Some Spouses Aren’t Co-Borrowers on Reverse Mortgages
A homeowner must be at least 62 years old to take out an FHA reverse mortgage. When one spouse is older than the other, the older spouse may be eligible to take out a reverse mortgage while their younger partner is not. If the couple wants to take out the loan, the older spouse will be the sole borrower. The amount available to borrow will be based on the younger spouse’s age.
At closing, both spouses must sign the loan paperwork. The paperwork will characterize the non-borrowing spouse as eligible or ineligible. That designation will determine the non-borrowing spouse’s right to keep living in the home if the borrowing spouse dies first or permanently moves into a residential healthcare facility. Eligible non-borrowing spouses usually can; ineligible ones cannot.
When one spouse is not a borrower on the reverse mortgage, is not on the home’s title, or both is when problems can arise.
To be an eligible non-borrowing spouse, you must be married to the borrowing spouse from the time the reverse mortgage closes until the time the borrowing spouse dies or moves out. You must be named as an eligible non-borrowing spouse in the loan documents, and the home must be and remain your principal residence.
How Reverse Mortgages Affect Spouses
When the borrowing spouse dies or moves out for longer than 12 consecutive months—think of moving into residential care, such as a nursing home or assisted living—the reverse mortgage enters a deferral period. For an eligible non-borrowing spouse, deferral means the lender doesn’t say, “Hey, your loan is due. Time to repay it or give us the house.” Instead, the lender will say, “Hey, you can’t have any more money, but you can still live in the house until you die or move out.” There are more conditions, which we’ll discuss below, but that’s the gist of it.
A spouse can be an eligible non-borrowing spouse when the loan closes but later become ineligible through divorce and lose the right to the deferral period. The period also doesn’t apply to a new spouse whom a borrower marries after taking out the loan. The newlyweds would need to refinance the reverse mortgage to get the new spouse on the loan and make them a co-borrower or an eligible non-borrowing spouse.
Old Rules vs. New Rules
Under older reverse mortgage rules, there was no deferral period for eligible non-borrowing spouses. Older rules also didn’t base borrowing limits on the younger spouse’s age.
As a result, couples had an incentive to make the older spouse the only borrower, so they could borrow against more of their home equity. Unfortunately, that often resulted in a non-borrowing spouse losing their residence when their spouse died or moved out and into long-term care. Litigation and bad press ensued.
Things are better today—though from a consumer’s perspective it may not feel like the new rules go far enough. Still, in terms of keeping the reverse mortgage program financially viable while also allowing senior homeowners to get reverse mortgages with some non-borrowing spouse protections, the U.S. Department of Housing and Urban Development (HUD) believes that the rules do make sense.
Losing the House
Under today’s rules, an ineligible non-borrowing spouse will lose the home when their spouse dies or moves out, but in many cases, this person won’t need or want to live in the home anyway. An exception is if you’re an ineligible non-borrowing spouse who married someone with a reverse mortgage on their home and then moved in with them full time.
In this case, you and your spouse need to act now. You can refinance and get your name on the loan, arrange to set aside enough money to repay the loan when it becomes due, or have a plan for where you will live if you can’t repay the loan and have to (or want to) move out. You cannot simply assume your spouse’s loan.
Getting More Money
Even if you’re an eligible non-borrowing spouse, you won't be able to access any more funds from the reverse mortgage if your spouse dies. You’ll stop receiving any of the monthly payments your spouse was receiving from the loan and lose access to any reverse mortgage line of credit your spouse had.
Maybe that sounds unfair, but it’s not, and here’s why: You’re not a borrower on the loan. That said, even though it’s fair and legal, this scenario could present a major problem if you would become financially insecure without continued income from the reverse mortgage.
An eligible non-borrowing spouse also can’t access any funds in the reverse mortgage’s life expectancy set aside (LESA) account, if it has one. The LESA account exists to make sure that the borrower can keep up with property tax and homeowners insurance payments. It also reduces how much home equity the borrowing spouse can access during their lifetime.
Same-sex couples who were in a committed relationship but not legally allowed to marry when a reverse mortgage was obtained can have the non-borrowing partner become an eligible non-borrowing spouse as long as they marry before the borrower dies.
How Widows and Widowers Can Avoid Losing Their Homes
An eligible non-borrowing spouse who wants to keep living in the home must keep meeting the other standard requirements of a reverse mortgage:
- Live in the home as your principal residence (something you must certify in writing each year)
- Keep the home in good condition, on par with the FHA’s minimum property standards
- Keep current with property taxes and homeowners insurance
If your loan requires you to carry flood insurance, you must also keep up with those premiums. The same applies to any homeowner association (HOA) fees.
The reverse mortgage balance will keep accruing interest and monthly mortgage insurance charges until the loan is repaid by refinancing, selling the home, or allowing the lender to foreclose. If cash is more important than staying in the home, selling it shortly after the borrowing spouse’s death might be a good option. However, it depends on what the home is worth and how much you would walk away with after absorbing the costs of selling the home and paying off the reverse mortgage.
Is There Any Way for a Surviving Eligible Non-Borrowing Spouse to Get More Money From a Reverse Mortgage?
Yes. When the surviving spouse is 62 or older, they may be able to refinance the reverse mortgage. They would need to be able to pay off the existing loan with the proceeds from the refinance or another source. Refinancing may not be possible, however. It will depend on how high the reverse mortgage balance is, what the home is worth, current interest rates, and the surviving spouse’s age.
What Happens if an Eligible Non-Borrowing Spouse Defaults on a Reverse Mortgage?
The law requires the mortgage servicer to give the eligible non-borrowing spouse 30 days to cure the default—that is, to fix the problem. For example, if the non-borrowing spouse missed a property tax payment or homeowners insurance payment, they’ll have 30 days to make it and provide proof of this to the mortgage servicer. If the non-borrowing spouse can’t fix the problem, then the servicer can make the loan due and payable.
To Get a Reverse Mortgage, Should I Take My Non-Borrowing Spouse Off the Title?
Experts say that the non-borrowing spouse should not allow their name to be taken off the title. Doing so will weaken their rights if their borrowing spouse dies first.
The Bottom Line
For many seniors, access to home equity through a reverse mortgage is key to aging with dignity. When retirement savings, Social Security, and Medicare aren’t enough for living expenses and medical bills, reverse mortgages can save the day. Even financially comfortable seniors may take out reverse mortgages as a buffer against market downturns and outliving their savings.
Changes to reverse mortgage laws in 2021 will help more non-borrowing widows and widowers avoid losing their homes. However, if HUD assigned the borrowing spouse’s reverse mortgage case number before Aug. 4, 2014, the non-borrowing spouse could still lose the home.
If you (or your spouse) have already taken out a reverse mortgage, make sure you understand which rules apply to your situation. Consider meeting with a HECM counselor, an attorney, or a financial planner with reverse mortgage expertise. They can help you come up with a plan to protect the non-borrowing spouse’s financial and housing stability before it’s too late.