What Heirs Need to Know About Reverse Mortgages

Reverse mortgages let older homeowners convert home equity into cash without selling their property. But when the borrower passes away or permanently leaves the home, the loan must be repaid often by their heirs. Spouses may be protected depending on their eligibility status, while other heirs typically have three options: sell the home and repay the loan, pay off the balance to keep the property, or return the home to the lender through a deed in lieu of foreclosure.

The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA) and issued by FHA-approved lenders. Available to homeowners aged 62 and older, HECMs allow seniors to access home equity without selling their property. Repayment is triggered when the borrower or last co-borrower dies, sells the home, or moves out for 12 consecutive months (such as into long-term care). The repayment timeline and options vary depending on whether the heir is a spouse or another family member.

If you're the spouse of a reverse mortgage borrower, your rights depend on your classification under the loan agreement especially for HECMs originated on or after August 4, 2014. Here's how the categories break down:

Co-Borrowing Spouses

To qualify, you must have been 62 or older at the time the loan was issued and be listed on the loan documents. Co-borrowers can remain in the home and continue receiving payments even after their spouse passes away. The loan becomes due only when the last co-borrower dies or permanently leaves the home.

Eligible Non-Borrowing Spouses

If you were under 62 when the loan was issued, you may still be listed as an eligible non-borrowing spouse. To qualify, you must have lived in the home at the time of closing and continue to use it as your primary residence. While you won’t receive loan payments, you can remain in the home after your spouse’s death. The loan becomes due when you no longer live there.

Ineligible Non-Borrowing Spouses

If you don’t meet the criteria above, you’re considered ineligible. In this case, you can only remain in the home if you or your heirs pay off the reverse mortgage balance.

If you're not the borrower’s spouse but are listed as a co-borrower, you retain the same rights as a co-borrowing spouse including the ability to remain in the home and receive loan payments. If you're not a co-borrower, you’ll need to address the reverse mortgage when the borrower passes away or permanently leaves the home.

Here are your three main options:

• Sell the Home: Use the proceeds to pay off the reverse mortgage. If the sale price exceeds the loan balance, you keep the remaining equity.
• Pay Off the Loan Yourself: You can retain ownership by paying off the mortgage—often by securing a traditional mortgage.
• Return the Home to the Lender: This is called a deed in lieu of foreclosure and satisfies the debt without further obligation.

After receiving a Due and Payable Notice, heirs typically have 30 days to act. However, you can request up to a one-year extension to sell the home or arrange financing.

Importantly, HECM rules protect heirs from owing more than the home’s value. You’ll only be responsible for the lesser of the loan balance or 95% of the home’s appraised value. FHA insurance covers any shortfall.

Navigating reverse mortgage rules can be complex especially for heirs, non-borrowing spouses, and those unfamiliar with HECM policies. Your first stop should be the reverse mortgage lender or loan servicer, who can explain your repayment options and timelines. For legal clarity, consider hiring an attorney experienced in estate and mortgage law.

You can also speak with a HUD-approved housing counselor for free or low-cost advice. HUD, which oversees the FHA, offers a searchable directory of certified counseling agencies on its website. For direct assistance, call (800) 569-4287 to connect with a counselor who can guide you through your rights and next steps.

Reverse mortgages come in three main forms, each tailored to different homeowner needs. The most common is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA) and available to homeowners aged 62 and older. Proprietary reverse mortgages are offered by private lenders and feature higher loan limits, making them ideal for high-value properties but they’re not government-insured. Single-purpose reverse mortgages are issued by state agencies or nonprofits and must be used for specific needs like home repairs or property taxes.

If you live in a home with a reverse mortgage but are not a co-borrower, eligible non-borrowing spouse, or legal heir, your right to remain ends when the borrower dies or permanently leaves the property typically defined as 12 consecutive months away, such as entering long-term care. At that point, the loan becomes due, and you must vacate the home unless the legal heirs pay off the mortgage and choose to retain ownership. This rule ensures that repayment is triggered and the lender can recover the loan balance.

Yes, reverse mortgage borrowers can pay off the loan at any time most commonly by selling the home. In certain cases, repayment may be required sooner, such as when the property falls into serious disrepair or the borrower fails to maintain homeowners insurance or pay property taxes. These conditions can trigger a “Due and Payable” status, requiring immediate resolution to avoid foreclosure.

Reverse mortgages must be repaid when the last borrower dies or permanently leaves the home. At that point, heirs including eligible or ineligible non-borrowing spouses face key decisions: sell the home, pay off the loan to keep it, or return the property to the lender. If you expect to inherit a home with a reverse mortgage, it’s wise to explore your options in advance. And if you're the borrower, discussing repayment scenarios with your heirs now can help avoid confusion and financial stress later.