Is it true that a new reverse mortgage rule lets a surviving spouse stay in the house even if she's not the borrower?
Yes. The new rule, which applies to mortgages taken after Aug. 4, protects a "non-borrowing" surviving spouse from foreclosure after the borrower's death. But she loses access to the reverse mortgage loan proceeds.
As I have explained in earlier columns, a reverse mortgage loan must be repaid when the borrower moves, sells the house, or dies. Previously, when only one spouse was the borrower and that spouse died, the surviving spouse had to repay the loan or face foreclosure.
Under the new rule, repayment can be postponed until the survivor's death. She can remain in the house if she continues paying property taxes, insurance premiums, and maintenance costs, says Michael O'Connor, a Garden City mortgage broker specializing in reverse mortgages. But as a non-borrower, she won't receive loan proceeds, whether as monthly income, lump sums, or access to a line of credit.
By law, reverse mortgages are only available to people age 62 or older. As a result, a couple who were, say, 62 and 55 years old could only borrow in the 62 year-old's name. The new rule allows a spouse under age 62 to be listed on the mortgage, O'Connor says. But this means the couple will get a smaller loan because its size is based on the younger spouse's age -- and the spouse under age 62 is still deemed a "non-borrowing" spouse. By law, both spouses must receive counseling before taking a reverse mortgage even if only one is the borrower, says Mike Temares, a HUD-certified counselor at the Nassau County Family and Childrens Association.
The bottom line New reverse mortgage rules protect a surviving spouse from foreclosure, but end her access to loan proceeds after the borrower's death.
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