Since their introduction in 1961, reverse mortgages have been continually improved and strengthened, making them an even better financial option for older Americans seeking to live in the home they love while gaining extra cash for their retirement. One standout improvement has been increased financial protection and security for non-borrowing spouses.
A non-borrowing spouse is the spouse not listed as a borrower on the Home Equity Conversion Mortgage (HECM) or reverse mortgage contract.
Whatever the reason, it is vital that the non-borrowing spouse be designated as such on the loan contract. This all-important designation means that if the borrower passes away while the loan is still active, the non-borrowing spouse will be able to remain in the home, provided they continue to meet the HUD and other loan requirements, including: maintain the home, and pay property taxes and homeowners insurance.
This wasn’t always the case. Before August 2014, non-borrowing spouses, upon the death of their spouse, had to either pay off the house to remain in the home or move out.*
So, what are these conditions that non-borrowing spouses must meet so they won’t be foreclosed upon after the passing of their spouse? The non-borrowing spouse:
- Is married to the borrower at the time of the loan closing and remained married to the borrower for the duration of the marriage
- Is listed specifically as a non-borrowing spouse within the HECM documents
- Can prove their legal right to reside in the property within 90 days of the borrower’s passing
- Occupies and continues to occupy the home as the primary residence
- Will adhere to all HUD requirements by paying property taxes, home insurance, maintenance expenses and otherwise comply with loan terms
- Certify annually they are the late mortgagee’s (borrower’s) non-borrowing spouse occupying the home
Although designated non-borrowing spouses enjoy far more protections that they did before August 4, 2014, they still face some challenges.
For example, they are not protected if the borrower moves to a nursing home or care facility for more than 12 months. In this case, the reverse mortgage loan would become due and payable.
Also, reverse mortgage disbursements cease upon the borrower’s death. [EH1] [PB2] [PB3] They don’t pass to the non-borrowing spouse, whether the spouse is an eligible or ineligible non-borrowing spouse. Only borrowers of the reverse mortgage loan can access loan proceeds.
On the surface, a reverse mortgage is a simple concept. If you are 62 or older, you can borrow against your home equity so that you can live in your home without mortgage payments and have extra cash to live on for your retirement. In exchange, you have to agree to maintain your home, keep up your property taxes and homeowners insurance and comply with your loan terms.
If you are survived by a co-borrowing spouse, he or she will continue to enjoy those same reverse mortgage rights. Any proceeds that the married couple had been receiving from their reverse mortgage also continue for the surviving spouse.
Be prepared to ask your reverse mortgage loan provider, reverse mortgage counselor and other financial professional knowledgeable about reverse mortgages exactly what protections there are. Know how they work and how they would apply if you were listed as a non-borrowing spouse. Here are some questions to keep in mind:
1. Would it be better off to wait and apply for a reverse mortgage when both my spouse and I are 62 or older?
2. What specific actions must a non-borrowing spouse take after the death of the borrower?
3. Once I’m listed as an eligible non-borrowing spouse, can I ever lose that designation, which could put my protections at risk?
4. What arrangements can be made to protect a non-borrowing spouse in the event that the borrower must leave the home for mental or physical incapacity (like a nursing home)?
Today, non-borrowing spouses enjoy more protections than ever before. Since August 4, 2014, this designation has made it possible for the widow or widower to remain in the home they love. Of course, Borrower(s) must continue to pay property taxes and homeowner’s insurance, maintain the home, and otherwise comply with the loan terms.
The non-borrowing spouse designation has also made it possible for more older married couples to obtain a reverse mortgage to improve their retirement. But keep in mind that with more rights and protections also come greater responsibilities to carry out the terms and conditions of the reverse mortgage loan.
*Pre August 4, 2014 Non-Borrowing Spouses
Although non-borrowing spouses prior to August 4, 2014 had few options other than paying off the reverse mortgage or moving out after the borrower had passed, lenders can now assign these pre-Aug. 4, 2014 loans to HUD. This “Mortgagee Optional Election Assignment” (MOE Assignment) benefits both the non-borrowing spouse and the lender. The non-borrowing spouse gets to remain in the home, again providing they continue to pay property taxes and homeowner’s insurance, maintain the home, and otherwise comply with the loan terms.
And the lender is made whole by HUD without having to carry out a foreclosure.
We hope this article has given you some things to think about. Of course, every situation is different. This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.