What happens to a reverse mortgage when the homeowner dies?
The loan becomes due and payable, and the estate or heirs decide how to settle it. They can repay the balance and keep the home, refinance it into a traditional mortgage, or sell and keep any remaining equity. HECMs are non-recourse, so if the balance exceeds the home value, the amount owed is capped at 95% of appraised value and no other estate assets are at risk.
The loan becomes due and payable, and the estate or heirs decide how to settle it. They can repay the balance and keep the home, refinance it into a traditional mortgage, or sell and keep any remaining equity. HECMs are non-recourse, so if the balance exceeds the home value, the amount owed is capped at 95% of appraised value and no other estate assets are at risk.
Detailed answer
When the last surviving borrower dies or permanently leaves the home, the servicer sends a notice and the loan matures. Heirs generally receive an initial period of roughly six months to act, with extensions commonly available while a sale or refinance is genuinely in progress. Three paths exist. Heirs who want the home can pay off the balance from other funds or refinance it into a conventional mortgage in their own names. Heirs who do not want the home can sell it, repay the loan from the proceeds, and keep whatever equity remains. Heirs who want nothing to do with it can sign a deed in lieu and walk away with no personal liability. The non-recourse protection is the part families most often miss: because a HECM is FHA-insured, the debt can never exceed 95% of the appraised value at the time of settlement. Heirs are never pursued for a shortfall, and no other estate asset can be reached to cover one.
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