Many people hesitate to consider a reverse mortgage loan because they’re concerned about leaving a burden on their family members or heirs. This belief is a common misconception about how the loan works and may prevent potential borrowers from exploring it as an option.

The truth is that heirs are never personally liable for reverse mortgage debt after a borrower’s death, and the lender does not automatically take ownership of the home. However, the loan does need to be paid off, and the heirs or estate have some decisions to make about how that will happen. Here’s an overview of how it works and what heirs should know.

What happens to the house after a reverse mortgage borrower dies?

When a reverse mortgage borrower passes away, the lender will send a due and payable notice to the estate and heirs. This notice typically includes options for how an heir can deal with the property, such as:

• Selling the property to satisfy the reverse mortgage debt.
• Providing the lender with the deed and walking away.
• Paying off the loan balance if they wish to keep the home.

Upon receipt of the letter, heirs must inform the lender of their plans for paying back the loan. If heirs do not respond to the letter within the specified timeframe, the lender may initiate foreclosure. However, even if the heirs are unsure how to proceed, it is wise to stay in communication with the loan servicer, who may be able to offer an extension.  

For more information, the National Reverse Mortgage Lenders Association provides a helpful guide about what to do when a reverse mortgage loan becomes due.

Are heirs personally responsible for reverse mortgage debt?

Heirs are not personally responsible for any reverse mortgage loan debt. However, the estate must continue paying property charges like taxes and insurance until the loan is paid.

Heirs or the estate will inherit the home subject to the mortgage debt. Once they have repaid the outstanding balance on the home, either through the sale of the home or some other means, they keep any remaining equity. In cases where the value of the home is less than the balance of the mortgage, they may choose to allow the lender to foreclose on the property.

What is a “non-recourse” loan?

Most reverse mortgages are non-recourse loans, meaning the lender can only seek repayment through the sale of the home. With this type of loan, borrowers or their heirs will never owe the lender more than the property’s value.

If the loan amount exceeds the home’s value, the lender cannot pursue the estate or the heirs’ assets for the difference. Conversely, if the loan balance is less than the home’s market value at the time of sale, the heirs keep the remaining equity.

Can heirs keep the house?

Heirs are not required to sell the home to satisfy the loan balance. If they wish and are able, they have the option of paying back the loan either with cash or by taking a new mortgage.

While heirs have multiple choices for how they will settle the reverse mortgage, consulting with a financial advisor can be helpful in weighing the pros and cons of each before making a decision.