What if I marry after getting a reverse mortgage?
If you obtained a reverse mortgage and have since married or remarried, your spouse may not be able to continue living in the home after you pass away.
Recent changes in the laws governing reverse mortgages have provided increased protection to spouses who are not named on the original reverse mortgage contract. Today, spouses who are not listed on the reverse mortgage can remain in their homes after the death of the borrower by being designated Eligible Non-Borrowing Spouses.
This protection, however, only applies if the borrower and spouse were legally married at the time the reverse mortgage was obtained or in a same-sex relationship that wasn’t recognized by their state of residence at the time they entered the contract.
There is nothing in the rules for reverse mortgages that addresses a marriage that occurred after the reverse mortgage started. Therefore, in this situation, the reverse mortgage must be repaid shortly after the borrower’s death. If the surviving spouse who married the borrower after the contract closed doesn’t have the funds to repay the loan, he or she will have to move and sell the property.
If you have a reverse mortgage and have either been married since that time or are planning to get married, there are a few ways to ensure your surviving spouse can remain in the home if you die first.
Refinance the reverse mortgage to include your new spouse
The Federal Housing Administration (FHA) allows homeowners to refinance their reverse mortgage if there is a tangible benefit to doing so. When you refinance, you replace your existing reverse mortgage with a new agreement using new terms, rates, and guidelines. Some of the proceeds from the new reverse mortgage will have to pay off the loan proceeds and interest accrued from the original contract.
When refinancing, you can add your new spouse to the new reverse mortgage contract. Keep in mind that if your new spouse is younger than you, it will negatively impact your new principal limit if you refinance. In a situation where co-borrowers are applying for a reverse mortgage, the availability of funds is based on the age of the youngest borrower or eligible non-borrowing spouse.
That means if you are, say, 75 years old, and you recently married a 62-year-old, it will be your spouse’s age that will determine the principal amount. A younger spouse’s age will also determine your new principal limit if he or she is under 62. In that scenario, the spouse will be listed on the contract as an eligible non-borrowing spouse.
The other downside to refinancing a reverse mortgage is similar to that of a traditional mortgage: the fees and closing costs associated with the transaction.
Buy a life insurance policy
Another option is to buy a life insurance policy on the life of the borrower with the spouse as beneficiary. You can set the death benefit to an amount that will fully pay off the reverse mortgage upon the borrower’s death, allowing the surviving spouse to remain in the home. To determine the best estimate of how much the loan will be, you can refer to the reverse mortgage amortization schedule.
Since the reverse mortgage will stop providing funds after the borrower’s death, you may also want to fund a death benefit high enough to cover property taxes, insurance, and other homeowner costs.
Repay the reverse mortgage before you pass away
If you have the funds available, you can pay off the balance of your reverse mortgage at any time. This means there will be not a loan for the surviving spouse to repay after you pass away, and he or she can remain in the home.