What happens if my reverse mortgage loan balance grows larger than the value of my home?

It depends on what type of reverse mortgage you have. Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. An FHA-insured HECM loan is a non-recourse loan. This means that when your home is sold to repay the loan, neither you nor your family will be required to pay more than the sales price of the home. The insurance will pay for any shortfall, so long as your home sells for at least 95 percent of the current appraised value.

If your heirs want to keep the home when you pass away (or move out permanently) instead of selling it, they will have to pay off the loan. But they won’t have to pay more than the home is worth. If the loan balance is more than your home is worth, they will only have to pay 95 percent of the current appraised value of your home. The FHA insurance will cover the rest. (If the loan balance is less than the value of your home, they will only have to pay the loan balance).

Proprietary (non-FHA insured) reverse mortgage loans are a different story. These may have very different loan terms. So if you have, or are considering, a proprietary loan make sure you understand the provisions carefully.

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