Reverse Mortgages and Divorce: What Happens to the Homeowner’s Equity?

If you and your spouse have a reverse mortgage and are getting a divorce, you may understandably wonder what happens to the equity in the home.

Do you have to repay the loan? Will your name or that of your spouse have to stay on the mortgage? Does one of you have to remain in the home?

In this article, we’ll answer all of these questions and more. Let’s take a look at what happens to the home equity when you have an existing reverse mortgage and are going through a divorce.

What is a reverse mortgage and how does it work?

Seniors aged 62 and older can use a reverse mortgage to access the equity in their home while eliminating the need to make monthly repayments.

The funds received from a reverse mortgage are tax-free and can be used to supplement retirement income, pay down debts, pay medical expenses and so on.

To qualify for a reverse mortgage, you must meet the age requirements as well as the equity requirements. Borrowers must have a significant amount of equity built up into their homes.

The most popular type of reverse mortgage is the home equity conversion mortgage (HECM), which is backed by the U.S. Department of Housing and Urban Development (HUD).

You don’t have to repay a reverse mortgage unless one of the following happens:

• You move out
• You sell the home
• You pass away
• You stop paying taxes or insurance
• You stop maintaining the home according to HUD standards

If the loan becomes due, there are multiple ways you can choose to repay the loan.

But what happens to the loan if you and your spouse are getting a divorce?

Do you have to repay the loan if you get divorced?

The fate of your reverse mortgage depends on what you and your former spouse decide to do with the home and who is listed on the mortgage:

• If you both intend to leave the home and sell it, the loan will become due.
• If you both are listed as co-borrowers on the reverse mortgage, one of you can choose to remain in the home, and it will not become due until that person decides to move out or sell the home.

If you’re not listed as a co-borrower on the reverse loan, you still can choose to keep the home by refinancing the loan.

What happens to the home equity if you get a divorce?

The fate of your home’s equity depends on the divorce negotiations:

• If you sell the home and the loan becomes due, you may have to pay off the reverse mortgage with the proceeds, and whatever is left can be split into an agreed-upon percentage.
• If one spouse decides to keep the home, the loan will not become due, but you may have to pay out an agreed-upon portion of the home equity to the other spouse.
• If a non-co-borrowing spouse decides to refinance and keep the home, that spouse may be required to pay out an agreed-upon portion of the home’s equity to the other spouse.

Some individuals choose to take out a reverse mortgage during a divorce and tap into home equity to fulfill the settlement to their spouse.

What are your reverse mortgage loan options following a divorce?

Ultimately, you and your spouse will have two main options in a divorce:

1. Sell the home
2. One spouse stays in the home

This major decision will guide your reverse mortgage loan options, including whether the reverse mortgage remains the same or must be refinanced.

Selling the home often is a simpler option for couples who are not both listed on the loan; but if you are co-borrowers, you will have to determine who should remain in the home.

If one of the co-borrowers decides to remain in the home, the loan will not become due until the remaining borrower moves out, sells the home or is deceased.

If only one spouse is listed on the mortgage and the borrowing spouse wants to move out, the non-borrowing spouse will have to refinance the loan.

Either way, if you get a divorce, you will have to submit your divorce decree to your lender to move forward with your options.

There’s also one more consideration in a divorce—eligible non-borrowing spouses.

Who is considered a non-borrowing spouse?

A non-borrowing spouse is not listed as a borrower on the reverse mortgage, but they are:

• Married to the borrower at the time of the loan’s origination
• Established as an eligible, non-borrowing spouse with a lender during the conception of the loan
• Meet all requirements for the reverse mortgage, including maintaining the property and paying taxes and insurance

If you’re listed as an eligible, non-borrowing spouse and you and your spouse get a divorce, the option to remain in the home depends on your reverse mortgage terms and the divorce agreement.

Often, the best option for a spouse who wants to remain in the home but is not listed as a co-borrower is to refinance the mortgage.

What happens if you get remarried?

If you have a reverse mortgage and someday get married again, your new spouse will not have HECM protections if you move out or pass away.

In this circumstance, it’s best to refinance into a new loan so the new spouse can be added to the loan, either as a co-borrower (if eligible) or as an eligible, non-borrowing spouse.

Discover your personalized loan options with Compass Mortgage

The friendly, experienced loan experts at Compass Mortgage are ready to help you and further discuss your reverse mortgage options.

The Compass Mortgage team treats our borrowers like family. Our core values—excellence, integrity and the infinite worth of everyone we meet—are who we are and how we conduct business..

We would love to speak with you to explore your reverse mortgage options and help you unlock the major benefits this loan offers to those who qualify.

Apply for a reverse mortgage now to supply us with basic information about yourself and your property, or call us at (877) 635-9795 to speak with a loan officer now.