As a reverse mortgage specialist you might imagine I get slaughtered with questions from customers. One of the biggest concerns is what happens to the equity in the home after the borrower passes on.



Borrowers getting reverse mortgages can expect their lender to allow them to pull cash out of the equity of the home equal to 50% to 75% of the formal valuation of the house.

Interest accumulates on top of itself and the loan to the senior borrowers. This is how reverse mortgage lenders make money. Only upon death and/or sale of the home is the loan typically required to be repaid to the lender.

Reverse mortgage companies are very careful about how much money they lend in relation to the value of the home. This is why age plays such an important role in this calculation.

The calculated loan amount helps the lender avoid being placed in a position where more is owed than the value of the home. The norm is the borrower or the borrower's heirs will have equity at sale.

If the borrower dies the home is passed along to the estate for liquidation to pay the mortgage company back. The mortgage company allows roughly 12 months for a sale.

A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.

It will eventually sell. When the home sells the bank is repaid the original principal amount loaned plus accumulated interest over the years. That is all the bank is entitled to receive.

If any equity is left over the heirs get it as outlined in the will. It is a common misconception that the reverse mortgage lender is entitled to any of the remaining equity.

Every so often more will be owed than the home is actually worth. In this event the heirs are in a safe zone.

The HECM or reverse mortgage is a non-recourse mortgage. This means the most the bank is entitled to receive is the sale price of the home minus closing costs. If more is owed, too bad for the bank.

Regardless of some of the mythology reverse mortgages are fairly safe for the borrower and estate.