Reverse mortgages are when lenders give money to the borrower. The borrower essentially gives the house equity to the lender in exchange for either a lump sum disbursement or monthly payments. The principal and interest go up with a reverse mortgage. The full balance becomes due upon the passing of the borrower.
In reverse mortgages, the payment clock starts ticking upon the passing of the homeowner. There is typically a 6-month repayment clock. In other words, you may be able to get some time before you have to pay back the amount due on the reverse mortgage. Sometimes the repayment can be extended as it might take more than six months to get authority to manage the estate.
The key is, that the lender in a reverse mortgage may be entitled to full payment upon the passing of the homeowner. That is why it is in your best interest to act fast and at the same time reduce the costs associated with probate and the cost associated with the sale of the house.
The heirs can keep the funds that exceed the amount of the loan plus the costs associated with probate and the sale of the house. In other words, the heirs can keep the balance of the funds if the house is sold for more than the reverse mortgage and the costs associated with probate and the sale of the house. If the loan balance is greater than the market value of the home plus all the costs associated with probate, and sales of the house; the bank may take possession of the house and the estate is responsible for the costs associated with probate and the sale of the house.
It is in your best interest to get the house sold quickly so you can turn the equity into cash. There have been instances where heirs have not acted quickly and the reverse mortgage lender, changes the locks on the house and sells the house at auction.
Here is a scenario that can happen, You inherited a home from your mother which has a positive equity of $50,000. The passing of your loved one is emotionally difficult and because of this, the process of attending to the house is delayed. You ignore letters from the mortgage company and you do not even know there is a reverse mortgage on the house. One day you leave the house only to come back to find the locks are changed and the house sold at auction. That is why it is best to act fast.
