What Happens to Your Home If You Die With a Reverse Mortgage?

A reverse mortgage can be a handy financial tool for older homeowners who want to take the equity they’ve built up and turn it into cash, without having to sell the home entirely. 

Like many loan products, however, you and your heirs can’t get out of the deal simply by dying. In fact, if you do die with a reverse mortgage, the clock starts ticking on those who might seek to inherit your home. 

There are a number of options for what can happen in this situation, and keeping the home in the family is not a guarantee. If you want your children or other loved ones to inherit your home, estate planning and communicating your financial situation to them as soon as possible is critical. 

The basics of a reverse mortgage

A reverse mortgage allows homeowners aged 62 and older to convert home equity into cash without selling their home or making monthly mortgage payments. 

"Reverse mortgages, while not for everyone, can provide some families with the opportunity to access otherwise unavailable equity for vital care needs," says attorney Daphne Hamilton. "The ability to leverage assets in order to pay for advanced care needs that come with aging is integral to the ability of seniors to age safely in place."

The loan balance grows over time as interest and fees accumulate, and the loan doesn't need to be repaid until the homeowner dies, sells the home, or moves out for good.

Here's how the numbers work: When you get a reverse mortgage, you're approved to borrow up to a certain amount based on your age, home value, and interest rates. You can take that money as a lump sum, monthly payments, a line of credit you draw from as needed, or some combination thereof. Let's say your home is worth $400,000, and over 10 years, you withdraw $150,000 in cash. Because interest compounds on everything you've borrowed—and you're making no payments—that $150,000 might grow to $250,000 or more by the time you die. 

The clock starts ticking right away

Upon the death of the homeowner with a reverse mortgage, the heirs typically have just six months to decide what to do with the property. This timeline catches many families unprepared, especially when they're already dealing with grief and the logistics of settling an estate.

“This can be especially distressing for heirs who grew up in or currently live in the home, and for those hoping to inherit the property,” says Hamilton. “Losing a loved one and facing a threat to their home in the same period of time can be traumatic.”

The lender must be notified of the death, and once that happens, the heirs receive a due and payable notice. From that point, the clock is running. While lenders may grant extensions in some cases, these aren't automatic. The heirs will need to request them and show they’re making progress toward a solution in the meantime.

What options do heirs actually have?

“Families generally have three choices: Pay off the reverse mortgage, sell the home, or walk away,” explains Jonathan White, a Boston real estate attorney. “But if heirs delay or ignore the notice, the lender will foreclose and the family will lose the property.”

If allowing the lender to foreclose doesn’t feel like a legitimate option, it’s best to explore the first three paths. 

For those who decide to pay off the loan, this might mean using savings, taking out a new mortgage, or refinancing the reverse mortgage into a traditional mortgage. Of course, that may not be feasible if the heirs have homes and mortgages or other financial responsibilities of their own. 

Let’s say they decide to sell instead. Heirs can list and sell the property, then use the proceeds to pay off the reverse mortgage. If there's any equity left over after the loan is satisfied, that remainder goes to them as an inheritance. This option gives heirs the chance to recoup at least some value from the property, assuming the home is worth more than the loan balance.

And yes, heirs can also choose to simply walk away from the property and let the lender foreclose. This might sound drastic, but it's sometimes the smartest choice, especially when the loan balance exceeds the home's value. 

“If the reverse mortgage has a nonrecourse protection clause, then the other assets of the borrower or heirs are not at risk,” says Hamilton. “This means that if the homeowner had another property or additional accounts, then these assets cannot be taken by the lender.”

In short, if the loan balance is $300,000 but the home sells for $250,000, the heirs won't owe the difference. Instead, the lender absorbs that loss.

In these "underwater" situations, heirs have some important protections. If they want to keep the home, they can satisfy the loan by paying just 95% of the current appraised value instead of the full loan balance.

So if the loan balance is $300,000 but the home appraises for $250,000, heirs could keep the property by paying $237,500 rather than the full $300,000. If they want to sell the home instead, they can sell it for market value, use those proceeds to pay off as much of the loan as possible, and the lender absorbs any remaining shortfall. This Federal Housing Administration protection applies to most reverse mortgages (HECMs), which are insured by the FHA.

What steps to take to plan ahead

If you have a reverse mortgage—or if your parent or loved one does—honest conversations today can prevent painful surprises tomorrow. Adult children may have grown up in the home. They may have assumed it would eventually be theirs. Discovering they have only six months to come up with hundreds of thousands of dollars, or lose the house entirely, can be devastating.

“The best protection is proactive planning. Families that understand the rules before a crisis hits can protect equity, preserve options, and avoid the painful surprise that comes when the clock runs out,” says White.

With that in mind, talk openly with your heirs about the reverse mortgage. Make sure they know that the loan exists, what the current balance is, what the home is approximately worth, and what you’d want them to do with the property after you’re gone. As part of this communication, ensure heirs know where to find the reverse mortgage loan documents, contact information for the servicer, and other relevant paperwork such as property deeds and title information. 

Put your preferences in writing, whether that's in your will, a letter to your heirs, or both. Do you want them to sell quickly and split the proceeds? Would you prefer they try to keep the home in the family if possible? Clear guidance helps heirs make decisions under pressure.

Finally, some borrowers designate a trusted contact with their reverse mortgage servicer who can be notified of issues without violating privacy. While this doesn't give the contact any control over the loan, it can provide an early warning system.

Reverse mortgages serve an important purpose for many retirees who are house-rich but cash-poor. But they fundamentally change what happens to your home after death. Understanding this reality, discussing it openly, and planning accordingly can help ensure that whatever inheritance remains doesn't evaporate simply because your family didn't know what was coming.