Who owns the house in a reverse mortgage?

Introduction

In a reverse mortgage, one of the most common questions that arises is who owns the house. This article aims to provide a comprehensive understanding of the ownership structure in a reverse mortgage arrangement.

Understanding Reverse Mortgages

Before delving into the ownership aspect, it is important to understand the basics of reverse mortgages. A reverse mortgage is a loan available to homeowners aged 62 or older, allowing them to convert a portion of their home equity into cash. Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, in a reverse mortgage, the lender makes payments to the borrower.

Homeownership in a Reverse Mortgage

Borrower’s Ownership: In a reverse mortgage, the borrower retains ownership of the house. The title of the property remains in the borrower’s name, just like in any other mortgage. This means that the borrower continues to be responsible for property taxes, insurance, and maintenance of the home.

Lender’s Interest: While the borrower retains ownership, the lender holds a lien on the property. This means that the lender has a legal claim to the property as security for the loan. The lender’s interest in the property grows over time as the loan balance increases with accrued interest and fees.

Repayment of a Reverse Mortgage

Loan Repayment: The repayment of a reverse mortgage typically occurs when the borrower sells the home, moves out permanently, or passes away. At that point, the loan becomes due, and the borrower or their heirs must repay the loan balance. This can be done by selling the home, refinancing the loan, or using other funds.

Remaining Equity: After the loan is repaid, any remaining equity belongs to the borrower or their heirs. If the home is sold and the sale proceeds exceed the loan balance, the excess funds go to the borrower or their estate.

Heirs’ Rights and Responsibilities

Inheritance: Heirs have the right to inherit the property after the borrower’s passing. They can choose to keep the property by repaying the reverse mortgage loan balance or sell the property and use the proceeds to repay the loan.

Non-Recourse Feature: One important aspect of reverse mortgages is the non-recourse feature. This means that the borrower or their heirs are not personally liable for any shortfall if the loan balance exceeds the value of the home at the time of repayment. The lender’s claim is limited to the value of the home.

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Conclusion

In a reverse mortgage, the borrower retains ownership of the house while the lender holds a lien on the property. The borrower or their heirs have the right to inherit the property and repay the loan balance. The non-recourse feature provides protection to the borrower or their heirs in case the loan balance exceeds the home’s value. It is essential for homeowners considering a reverse mortgage to fully understand the ownership structure and repayment obligations.