When does a reverse mortgage have to be repaid?
A reverse mortgage becomes due when the last borrower dies or sells or gives away the home, when it's no longer their main home, when they're away more than 12 months in a row because of illness, or when taxes, insurance or other property charges go unpaid or the home isn't kept in repair.
Under HUD's HECM rules (opens in a new tab), the loan becomes due when:
- The last borrower dies, or sells or gives away the home.
- The home is no longer the borrower's main home.
- The borrower is away for more than 12 months in a row because of illness.
- Property taxes, insurance or other property charges go unpaid, or the home isn't kept in repair.
The borrower must also confirm once a year that they still live there. The CFPB's guide (opens in a new tab) says to tell the lender if they'll be away more than two months.
What if a parent moves into assisted living or a nursing home?
If the parent is the only borrower and moves out for medical reasons, the loan can come due once they've been away for more than 12 months in a row. If a co-borrower still lives in the home, it doesn't. Tell the lender early, and plan for whether the home will be sold or kept.
More from the CFPB on moving to care (opens in a new tab).
What about a spouse who isn't on the loan?
A non-borrowing spouse may be able to stay in the home after the borrower dies without the loan coming due, for HECMs with an FHA case number assigned on or after August 4, 2014. They generally must have been married when the loan closed, be named in the loan documents, and live there as their main home.
To qualify, a non-borrowing spouse generally must:
- Have been married to the borrower when the loan closed, and stay married until the borrower dies.
- Be named in the loan documents.
- Live in the home as their main home.
- Keep meeting the loan's terms, including paying taxes and insurance.
If your parent's spouse isn't on the loan, check the loan papers now. See the CFPB discussion guide (opens in a new tab).
What can heirs do with the home?
Heirs have three choices: pay off the loan and keep the home, sell the home and keep anything left after the loan is repaid, or give the home to the lender. Because a HECM is a non-recourse loan, heirs never owe more than the home is worth, even if the balance has grown larger than its value.
| Option | What heirs pay | What heirs keep |
|---|---|---|
| Keep the home | The loan balance or 95% of the appraised value, whichever is less — often through a new mortgage | The home |
| Sell the home | The loan balance from the sale; if the home sells for less, the shortfall isn't the heirs' to pay | Anything left after the loan is repaid |
| Hand the home to the lender | Nothing | Nothing — sometimes called a deed in lieu of foreclosure |
How long do heirs have?
The CFPB says heirs usually have 30 days after receiving the lender's notice to decide what to do, and may get up to six months to sell or arrange a payoff. If you need the extra time, ask the loan servicer for it in writing, early, and keep copies of every reply you get.
Source: CFPB on heirs keeping the home (opens in a new tab). Getting probate or trust paperwork moving early matters, because the servicer will want to know who has the right to act for the estate.
What extra protections does California law add?
California Civil Code § 1923.2 adds protections on top of the federal rules. The lender must give a list of at least 10 counseling agencies and can't pay them, can't take a final application or charge fees until seven days after counseling, and faces limits on selling annuities or other financial products with the loan.
Among the rules in California Civil Code § 1923.2 (opens in a new tab):
- The lender must give a list of at least 10 counseling agencies, and can't pay those agencies.
- The lender can't take a final application or charge fees until seven days after counseling is finished.
- There are limits on selling annuities or other financial products together with the loan.
More on this: Reverse mortgages (HECM)
