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When considering a reverse mortgage, it’s essential to think not only about the benefits during your lifetime but also about what happens to the loan when you pass away. Let’s delve into the details to understand what takes place when you have a reverse mortgage and you pass away.

1. Loan Repayment

Upon your passing, your reverse mortgage becomes due. The loan needs to be repaid, typically by the heirs or estate. This repayment can occur in several ways:

a. Selling the Home: The most common way to repay the reverse mortgage is by selling the home. The proceeds from the sale are used to settle the loan balance.

b. Refinancing: If the heirs wish to keep the home, they can choose to refinance the reverse mortgage into a traditional mortgage to retain ownership.

c. Using Other Assets: Heirs can use other assets or savings to repay the loan if they want to keep the home.

2. Home Equity

If your heirs or estate sell the home to repay the reverse mortgage, they will inherit any remaining equity after settling the loan balance, interest, and fees. It’s essential to communicate your wishes regarding the home’s disposition with your heirs in advance.

3. No Debt Obligation

One significant advantage of reverse mortgages is that they are non-recourse loans. This means that neither you nor your heirs are personally liable for the loan amount exceeding the home’s value. The lender can only claim the home as repayment, and they cannot go after other assets or heirs for the shortfall.

4. Selling the Home for More Than the Loan Balance

If the home sells for more than the loan balance, your estate or heirs will receive the excess funds. This can be a valuable financial legacy to pass on to your loved ones.

5. Timeframe for Repayment

Typically, heirs have up to six months to repay the reverse mortgage or make arrangements to settle the loan. Extensions may be possible under certain circumstances, such as when the home is being sold.