Some mortgages may be transferred from one borrower to another; they are sometimes referred to as assumable mortgages. Among them, reverse mortgages are not. This article examines several substitutes and explains why they aren’t transferrable.
- No other borrower may get a reverse mortgage.
- But co-borrowers on the mortgage are allowed to retain it and continue living in the house.
- Some spouses who are not borrowers are also entitled to stay in the house, but they won’t get any more money from the reverse mortgage.
- Other heirs are required to pay down the debt by either selling the house or purchasing it outright.
Why Reverse Mortgages Can’t Be Transferred
Each borrower’s reverse mortgage is meticulously customized. The Federal Housing Administration (FHA), which guarantees the most popular kind of reverse mortgage, known as a home equity conversion mortgage, might be less at risk as a result (HECM).The main danger is that the borrower may get more in the loan than their property is ultimately worth when it is sold, forcing the FHA to pay the lender the difference. That may occur, for instance, if the borrower opts to receive monthly payments for the rest of their lives (one of the many ways a reverse mortgage can be set up) and lives far longer than the lender would have reasonably anticipated.
Reverse mortgages are based on the age of the borrower (or borrowers) when the loan is made in addition to the equity that the borrower has built up in the house to assist reduce that risk. The older the borrower(s), the more equity they may borrow against and the more probable it is that the interest rate will be reduced.
The younger borrower’s age is taken into account if the loan identifies more than one borrower, such as a married couple, or if the loan lists an eligible non-borrower (see below, under Options for Surviving Spouses and Partners).
Borrowers are required to pay 2% of the loan sum up front and 0.5% of the remaining debt each year after that for the FHA insurance. The yearly insurance premium (in dollars) will increase along with the accumulated debt on a reverse mortgage since it will do so over time.
Additionally, there is some security for the borrower’s heirs in case the mortgage debt ever rises beyond the home’s market value. Although they must repay the loan, they are only obligated to pay the outstanding debt or 95% of the home’s assessed worth, whichever is less.
Options for Surviving Spouses and Partners
Typically, the loan must be repaid within a particular time frame when a reverse mortgage borrower passes away, vacates the property for an extended length of time (such as moving into an assisted care facility), or sells the property.
However, they may continue to reside in the house and receive loan payments if their spouse or partner is designated as a co-borrower on the mortgage contract.
Co-borrowers must also be at least 62 years old when the loan is obtained in order to be eligible. When that time comes, spouses who are younger than 62 may be named as eligible non-borrowing spouses on the loan. They have the right to continue living in the house after their spouse passes away if they complete all the standards, but they won’t continue to receive loan payments.
When the last co-borrower or qualified non-borrowing spouse vacates the property, the remaining loan sum will at last become payable.
Ineligible non-borrowing spouses are spouses who are not co-borrowers and who do not satisfy the eligibility standards for eligible non-borrowing spouses. (For instance, among other conditions, the spouse must have resided in the property at the time the loan closed and must still be doing so as their primary residence.) Non-borrowing spouses who are ineligible may only stay in the house if they pay off the reverse mortgage.
The HECMs that were created on or after August 4, 2014 must adhere to these regulations. For earlier HECMs, there are some somewhat different regulations.
In order to be eligible to co-borrow on a reverse mortgage, a spouse or other partner must also be 62 years old or older when the loan is applied for.
Options for Other Heirs
When a property with a reverse mortgage is inherited by a non-spouse, the loan must be repaid within 30 days of the lender sending the non-spouse a Due and Payable Notice. However, the non-spouse may ask for a one-year extension to sell the house or find financing to purchase it outright. They might also choose to just give the house back to the lender in order to pay off the loan.
According to the legislation, the heirs are only responsible for repaying the debt to the extent that it is less than the loan sum or 95% of the home’s assessed worth, whichever is smaller. Lenders will get the difference via FHA insurance.
Who is considered a spouse for reverse mortgage purposes?
A person must be legally married to the borrower in accordance with the laws of the state in which they live or where the wedding took place, and they must have stayed married, in order to be eligible as a spouse under the requirements that apply to eligible non-borrowing spouses. For heterosexual couples, the HECM (home equity conversion mortgage) must have been granted at the time the couple got married. When they were married later, same-sex partners who were legally barred from union at the time the HECM was granted may be considered spouses.
How can I find a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor?
Are all reverse mortgages insured by the Federal Housing Administration (FHA)?
No, the HECMs provided by FHA-approved lenders are the only ones that the Federal Housing Administration (FHA) covers. Reverse mortgages with a specific purpose are offered by certain charitable organizations, state and municipal governments, and some lenders who also provide their own proprietary reverse mortgages. The majority of the market, however, is made up of FHA-insured mortgages.
The Bottom Line
It is not possible to transfer a reverse mortgage from one borrower to another. In most cases, the loan must be returned shortly after the borrower passes away, vacates the property for a period of 12 months, or sells it. The loan will not need to be returned until the borrower’s passing, but wives or partners who are co-borrowers or, in certain situations, spouses identified as eligible non-borrowers on the loan agreement may stay in the house.
Spouses and other heirs are recommended to contact the lender, loan servicer, and/or a HUD-approved housing counselor as soon as possible to learn the necessary actions since these requirements may be difficult.
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