Can You Transfer a Reverse Mortgage to Someone Else?
Understand the options and limitations of transferring a reverse mortgage, including borrower eligibility, inheritance rules, and refinancing considerations.
A reverse mortgage allows homeowners aged 62 and older to convert home equity into cash without making monthly payments. While this provides financial relief, it also raises questions about transferring the loan to someone else.
Understanding these rules is important for borrowers and their families. Reverse mortgages are designed to remain with the original borrower and cannot simply be passed to another person. Instead, repayment obligations and lender approval determine what happens if a homeowner wants to transfer, inherit, or refinance the loan.
Transfer to Another Borrower
Reverse mortgages are tied to the original borrower and cannot be transferred, even to a spouse or family member. The loan remains in place until the borrower moves out or passes away, at which point repayment is required.
To transfer the loan, the existing balance must be paid off, usually by securing a new loan, such as a conventional mortgage. Lenders do not allow assumption of the loan because terms are based on the original borrower’s age and home equity.
Family members living in the home cannot take over the loan unless they were co-borrowers from the start. Non-borrowing spouses may have protections allowing them to stay in the home under certain conditions, but they do not inherit the loan. They must either repay the balance or sell the home to satisfy the debt.
Inheritance and Reverse Mortgage Obligations
When a homeowner with a reverse mortgage passes away, heirs must settle the loan balance. Unlike traditional mortgages, which allow heirs to continue payments, reverse mortgages require full repayment once the borrower no longer lives in the home.
Heirs typically have six months to resolve the loan, with up to two three-month extensions if they show progress in selling or refinancing. If they do not act within this timeframe, foreclosure may begin. However, because reverse mortgages are non-recourse loans, lenders can only recover the home’s value. If the loan balance exceeds the home’s worth, the Federal Housing Administration (FHA) allows heirs to settle the debt for 95% of the appraised value.
To keep the home, heirs must pay off the loan balance or 95% of the appraised value, whichever is lower. This can be done using savings, life insurance proceeds, or a new mortgage. Qualifying for a traditional loan can be difficult for those with limited income or credit history. Some families use estate planning strategies, such as trusts or life insurance, to help heirs retain the property.
Refinancing Options
Homeowners with a reverse mortgage may refinance to adjust terms, access more equity, or switch to a different financial arrangement. Refinancing replaces the existing loan with a new one, which could be another reverse mortgage or a traditional mortgage.
A common reason for refinancing is an increase in home value. If the property has appreciated, a new reverse mortgage may provide access to more funds. However, refinancing comes with costs, including closing fees, appraisal charges, and servicing fees, which should be considered beforehand.
Interest rates also play a role. If rates have dropped since the original loan, refinancing may offer better terms. However, because reverse mortgages accrue interest over time, refinancing later in the loan’s life may not always be beneficial. Borrowers should evaluate the total costs and how accrued interest affects their remaining equity.
Lender Approval Considerations
Lenders assess several factors before approving changes to a reverse mortgage, including modifications to loan terms, adding a co-borrower, or negotiating repayment options. Approval is based on federal regulations, investor guidelines, and the borrower’s financial situation.
A key factor is the borrower’s ability to meet obligations such as property taxes, homeowners insurance, and maintenance costs. Falling behind on these expenses can lead to default and foreclosure. Lenders may require financial assessments before approving changes to ensure the borrower can sustain these obligations.
Loan-to-value (LTV) ratios also impact lender decisions. If the home’s value has declined, remaining equity may not support adjustments. Lenders review updated appraisals to determine whether enough collateral backs the loan. If the balance has grown significantly due to accrued interest, refinancing or restructuring options may be limited.