Will a reverse mortgage harm my children?

Steve BucciDear Debt Adviser,
I got a reverse mortgage four years ago. I don't plan to die anytime soon. I'm in good health. However, when I do die, I worry my children won't be able to pay back the loan. What can I do to prevent my children from having a foreclosure on their heads? I'll be dead, but I don't want my children to have this burden, if there is one. Should I change my will in some way to protect them?
-- Judy

Dear Judy,
It's very sweet of you to worry about your children. But I think you're worrying unnecessarily.

After four years, the balance due couldn't have risen tremendously. If your kids are concerned about keeping your home, they can pay off the balance by buying the place now instead of letting the mortgage consume more equity.

If they can't afford to buy your house now, they may be able to in the future. No one can predict what the future will look like for your kids.

As for a foreclosure: A foreclosure happens when a debtor doesn't satisfy a loan agreement secured by real estate. In your case, the sale of the home will satisfy the loan agreement in full. Hence, there will be no foreclosure. This is not something that you need to worry about with a reverse mortgage. Your reverse mortgage is a nonrecourse loan that is secured by your home. The deed to the house is all that is needed to satisfy the contract.

Should your home be worth more than what is owed on the reverse mortgage at the time of your death, your heirs will have the option to sell the home, pay off the reverse mortgage and pocket the remaining equity. Conversely, if there is no equity left in the home after your death, your executor needs only to turn over the deed to the home, and the contract for the reverse mortgage loan is satisfactorily fulfilled.

Remember, a reverse mortgage becomes due for several reasons.

  • All borrowers have died.
  • The house is sold.
  • The borrower moves for more than 12 consecutive months.
  • The borrower does not meet the requirements of the loan (paying home insurance, property taxes and utilities).

By the way, it is a good idea to have your estate documents reviewed periodically to ensure they reflect your current needs. It may be time for a professional review. Now that you have a reverse mortgage, it wouldn't hurt to have your attorney review your will to determine if any updates are needed.

Good luck!

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