Inherited a Home with a Reverse Mortgage? Here’s What You Need to Know

I hope everyone has had a great week! Our office has been incredibly busy with The Guinn Estate Auction and The Junk Ditch Liquidation Auction taking place this past weekend. Both auctions were very successful, and we’re happy to have wrapped them up for our clients.

Recently, I’ve worked with numerous clients who have encountered reverse mortgages after the passing of a parent or loved one. Often, these mortgages were not disclosed during the person’s lifetime, and family members only learn about them when settling the estate. This can lead to confusion and uncertainty about what happens next.

This week, I want to address some common questions about reverse mortgages and what you should know.

What is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners aged 62 and older that allows them to convert part of their home’s equity into cash. Unlike a traditional mortgage, where the borrower makes monthly payments, a reverse mortgage pays the homeowner, and the loan balance grows over time. The loan typically does not have to be repaid until the homeowner sells the property, moves out, or passes away.

How Do They Work?

Homeowners receive funds from the lender in the form of a lump sum, monthly payments, or a line of credit. Interest accrues over time, and the loan balance increases rather than decreases. The loan is secured by the home itself, meaning repayment is due when the homeowner no longer lives in the house.

Are Reverse Mortgages a Good Idea?

Reverse mortgages can be beneficial for retirees needing supplemental income, but they are not right for everyone. While they provide financial relief, they also reduce home equity, which can impact inheritance. Additionally, borrowers must keep up with property taxes, insurance, and home maintenance—failing to do so can lead to foreclosure.

Can I Still Sell a Home with a Reverse Mortgage?

Yes! If the homeowner passes away or decides to sell, the home can still be sold. However, the reverse mortgage must be paid off from the proceeds of the sale. If the loan balance exceeds the home’s value, the heirs are not personally responsible for the difference—federal insurance covers the shortfall.

Does It Matter Where I Get My Reverse Mortgage?

Absolutely. Not all lenders are the same, and terms can vary. It’s crucial to work with a reputable lender and fully understand the loan terms. Seeking guidance from a financial advisor or attorney before committing to a reverse mortgage can help avoid surprises down the road.

Final Thoughts

If you or a loved one is considering a reverse mortgage, communication is key. Families should openly discuss these decisions to avoid unexpected challenges later. While reverse mortgages can be a useful financial tool, they should be approached with a full understanding of their long-term impact.

If you have any questions about reverse mortgages or real estate in general, feel free to reach out to one of our team members.

As always, keep dreaming big, investing wisely, and remember—whether it’s homes, businesses, treasures, or transitions, we’re here to help you move forward.

Cheers,
Brandon Steffen