Reverse mortgages are often marketed as a financial lifeline for older homeowners. But if you’re thinking long-term, about your family, your legacy, and your home, you’re probably wondering:

“What happens to the house when I’m gone?”

It’s a smart question and one every homeowner (and their heirs) should ask before getting a reverse mortgage. Let’s break down how reverse mortgages work after death, what heirs can expect, and how to plan ahead to protect your estate and your peace of mind.

What Is a Reverse Mortgage

A reverse mortgage allows homeowners aged 62 and up to convert part of their home’s equity into tax-free cash, without having to sell or move. The loan doesn’t require monthly payments, but interest accrues over time and is typically repaid when the homeowner passes away, sells the home, or moves out. The most common type is the Home Equity Conversion Mortgage (HECM), insured by the FHA.

So, What Happens When the Homeowner Passes Away?

Once the last borrower (or eligible non-borrowing spouse) passes away:

1. The loan becomes due in full.
2. The heirs are notified and given options on how to proceed.
3. The estate must either repay the loan balance or sell the home to settle the debt.

Option 1: Keep the Home

If heirs want to keep the home, they can pay off the reverse mortgage balance. This is often done through refinancing or using life insurance or other estate assets.

Good news: Even if the home’s value drops, heirs are never responsible for more than 95% of the current market value. FHA insurance covers the difference.

Option 2: Sell the Home

Heirs can also sell the home to repay the loan. Any equity remaining after the loan is repaid goes to the estate. If the home has increased in value, heirs may walk away with a profit. If it has decreased, the FHA covers the shortfall, no personal liability.

Option 3: Walk Away

Heirs are under no obligation to keep or sell the home. If they choose to walk away, the lender will foreclose, and the FHA will cover the loan loss. While this affects what’s passed down, it doesn’t impact the heirs’ personal credit or finances.

How It Impacts Estate Planning

A reverse mortgage changes the nature of your estate. Here’s what you should keep in mind:

Fewer Assets for Inheritance

The more equity you use, the less is left behind. Reverse mortgages aren’t “free money” they reduce home equity over time.

Need for Communication

Make sure your heirs understand the loan terms and what to expect. Many families are caught off guard because the homeowner never explained the arrangement.

Legal & Financial Planning Is Key

Work with an estate planning attorney to update your will, trust, and power of attorney documents. Include instructions about the reverse mortgage and your wishes for the home.

Frequently Asked Questions

Q: Can heirs still sell the home for a profit?

Yes. If the home is worth more than what’s owed, they keep the difference.

Q: Does the reverse mortgage affect Medicaid or other benefits?

Possibly. Reverse mortgage proceeds aren’t considered income, but large unused balances can count as assets. It’s best to consult with an elder law attorney.

Q: Can I add my kids to the reverse mortgage?

No. Only borrowers aged 62+ can be on the loan. However, you can discuss plans with your heirs and include them in decision-making.

Plan for the Loan and the Legacy

Reverse mortgages can be a useful tool but like any loan, they come with consequences.

If you’re considering one, don’t just think about today’s needs. Think about tomorrow’s impact. Clear communication with heirs, proper estate planning, and guidance from a qualified mortgage broker can help make the process smooth—for everyone involved.

Want help understanding whether a reverse mortgage makes sense for your situation? Let’s have a conversation and explore all your options, so your legacy stays protected.