Earthquakes and Reverse Mortgages

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Earthquakes and Reverse Mortgages

When a retiree is no longer able to work but has large equity in their residences, reverse mortgages are a common means for them to access money. What would happen if your house is destroyed in an earthquake because reverse mortgages are dependent on the worth of your property?

Key Takeaways

  • The majority of homeowner insurance policies exclude earthquake coverage.
  • You should seriously consider purchasing earthquake insurance if you have a reverse mortgage and reside in an earthquake-prone location.
  • Your reverse mortgage will become payable if you don’t have earthquake insurance and your house suffers significant damage. You risk losing your house to foreclosure if you are unable to pay it off.
  • The Federal Emergency Management Agency (FEMA) may be able to assist you with repairs if you are unable to pay for them after an earthquake and a disaster has been declared by FEMA.

How a Reverse Mortgage Works

For those who are 62 years of age or older and have a substantial amount of equity in their houses, a reverse mortgage is a sort of mortgage. Unlike a conventional mortgage, a reverse mortgage does not require payments to be made until the borrower passes away or relocates. Notably, your reverse mortgage becomes due if you don’t maintain the house in excellent condition or if you fall behind on your insurance and property taxes. You will experience foreclosure if you are unable to pay off your reverse mortgage.

Insurance Coverage and Reverse Mortgages

The foundation of reverse mortgages is the use of your house as security for the loan. You must thus maintain your house in excellent condition and pay your homeowners insurance payments on time. Since most homeowner insurance plans do not cover earthquake damage, if you have a reverse mortgage and an earthquake, you might run into difficulty.

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$6.1 Billion

The anticipated yearly cost of earthquakes in terms of damage to the country’s building stock

Reverse Mortgages with Earthquake Insurance Coverage

You ought to be able to have your property repaired or rebuilt without your reverse mortgage being due if you have earthquake insurance or a rider on your current insurance policy and it is destroyed. Contact your lender as soon as you can if you can since they will need specific papers to be completed.

Reverse Mortgages without Earthquake Insurance Coverage

Your reverse mortgage will become due if an earthquake damages your home and you don’t have earthquake insurance since your house is no longer deemed to be in good condition. You must appeal your notice of default by following the directions in your letter if your loan is about to become due.

The Federal Emergency Management Agency often declares a catastrophe in areas where there have been earthquakes powerful enough to cause damage to your property (FEMA).If this occurs, subsidies may be available to you to assist with home repairs, enabling you to continue in your house without having to repay your reverse mortgage. You may get in touch with an agency that provides aging services in your neighborhood by contacting (800) 677-1116 or going online to the Eldercare website.

Will my reverse mortgage become due if my house is damaged in an earthquake?

Your reverse mortgage will become due if your house is still in need of repair after an earthquake damages it and you don’t have earthquake insurance. Your reverse mortgage will not become due if your house is destroyed in an earthquake and you have sufficient insurance, enough cash to rebuild your house, or you get help from the Federal Emergency Management Agency (FEMA), a municipal program, or a charity.

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How will I pay for housing if my home is damaged in an earthquake?

You have a number of housing alternatives if an earthquake damages your house and renders it uninhabitable. If you have loss-of-use coverage on your homeowners insurance, your insurance provider will pay for your dwelling up to a specified amount. It’s important to examine your plan with your insurance agent to determine your precise coverage limitations and exclusions since loss of usage caused by an earthquake could not be covered. If FEMA has declared a disaster, they may assist you in finding and paying for temporary accommodation if you are unable to obtain your insurance to pay for housing and don’t have the money to pay for housing out of pocket. Make contact with the aging services provider in your area if a catastrophe has not yet been declared.

Will FEMA help if my home is damaged in an earthquake?

Yes, if FEMA has declared a catastrophe in your region, you may be able to seek help. When a catastrophe is declared, teams are sent to the region to help people apply for temporary housing and government funds to pay for functional, safe, and sanitary house repairs.

The Bottom Line

Consider purchasing earthquake insurance if you have a reverse mortgage and reside in a region that is susceptible to earthquakes. You may relax knowing that your house will be fixed if you have it and that your loan debt won’t suddenly become due. If you don’t have earthquake insurance and can’t receive help from FEMA or local charity to fix your house and don’t have the money to do it yourself, you risk losing your property to foreclosure.

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