The Department of Housing and Urban Development (HUD) made important changes to the HECM reverse mortgage program in April 2014 to better protect non-borrowing spouses under the age of 62. Prior to the change, only borrowers over the age of 62 could be on the reverse mortgage and on title to the home, which created some big potential pitfalls if the older spouse passed away. If the older spouse died, it was considered a maturity event and the younger non-borrowing spouse had to either pay off or refinance the loan balance or be forced to give up ownership of the home.
Non-Borrowing Spouses Risked Losing Their Homes
Obviously, it was never the intent of the HECM program to be forcing seniors out of their homes. But unfortunately, that’s what ended up happening. Check out the following, which is from an article published a few years ago by AARP:
Robert and Ophelia Bennett assumed that taking out a reverse mortgage on their Annapolis, Md., home, valued at $367,000 in December 2008, would help finance their retirement. “We were struggling to make ends meet,” says Robert Bennett, 69. “Our mortgage was our biggest burden. We figured if we could get that off of us, we could really make it.”
One month later, Ophelia Bennett died at 76. Though the couple had lived in the home since 1975, the reverse mortgage was issued only in her name. Robert Bennett says he was told by the lender that he could stay for one year under the terms of the mortgage. Then he’d have to pay the balance or sell.
But by 2010, the property value had plummeted. The market value fell to $100,000 less than the $300,000 Bennett needed to pay off his reverse mortgage and keep his home. He couldn’t pay off the loan and was facing foreclosure.
“Losing your wife is a hurt by itself,” he says, “but thinking you’re going to lose your home, too? And at this age?”
Unfortunately, what should have been a very positive change to this couple’s financial situation ended up becoming a complete nightmare for Mr. Bennett. There’s no way to know if Mr. Bennett knew the potential pitfalls ahead of time and just ignored them or his lender failed to fully inform him, but either way, the intent of the program was never to be forcing seniors from their homes. The reverse mortgage has always been about keeping seniors in their homes and giving them the ability to tap into their equity so they can enjoy a better retirement lifestyle.
Non-Borrowing Spouses Get Important New Protections
Mr. Bennett later joined a lawsuit that was instrumental in forcing the Department of Housing and Urban Development (HUD) to better protect non-borrowing spouses. Today, a surviving non-borrowing spouse can’t be forced from their home as long as it remains their primary residence and they keep up with required property charges such as property taxes, homeowner’s insurance, HOA dues, etc. As long as they do these things, they can live in the home as long as they wish without having to pay back the loan balance.
The following is rundown of how the new rules for non-borrowing spouses work:
- Both spouses are required to be party to the reverse mortgage contract, but the majority of the qualifying and paperwork will involve just the fully qualifying spouse. No longer can a non-borrowing spouse be left completely out of the transaction as Mr. Bennett was.
- Reverse mortgage proceeds are calculated based on the younger spouse’s age. If the younger spouse is a lot younger, it could result in a substantially reduced benefit amount.
- Non-borrowing spouses “inherit” the protections of the reverse mortgage if the older spouse passes. The reverse mortgage is not due and payable as long as the survivor continues paying required property charges such as property taxes, homeowner’s insurance, HOA dues, etc., and lives in the home.
- Though the surviving spouse will not need to repay the loan balance, they won’t have access to any remaining funds in the reverse mortgage. The loan closes out when the fully qualifying borrower passes away. If the surviving spouse wishes to access more funds, they will need to refinance into their own reverse mortgage.
As you can see, the game has changed significantly for non-borrowing spouses under the age of 62. As long as a surviving non-borrowing spouse continues to live in the home and pay property charges on time, he or she never will need to worry about losing the home if their older spouse passes away.
How Much Money Can I Get?
How much you qualify for depends on the value of your home, the age of the youngest borrower, and what program you select (fixed rate or variable rate). To get an idea of how much you might qualify for, check out our free, no-strings-attached reverse mortgage calculator.