Your heirs and the home

The protection that matters most

A HECM is non-recourse. The home is the only asset the lender can look to. Your heirs cannot be pursued for a shortfall, your other assets cannot be reached, and no family member becomes personally liable by inheriting.

This is not a courtesy from the lender. It is what the FHA insurance premium buys, paid by you at closing and annually thereafter.

What actually happens

When the last borrower dies or permanently leaves the home, the loan becomes due. Heirs have four options:

1. Sell the home. The most common path. The balance is paid from the proceeds and everything above it belongs to the heirs. If the house is worth $600,000 and the balance is $310,000, they keep $290,000 less selling costs.
2. Keep it by paying off the loan — with cash, or by refinancing into a conventional mortgage in their own name.
3. Keep it for 95% of appraised value. This is the one families miss. If the balance has grown past the home's value, heirs may buy it for 95% of the current appraisal, not the balance. On a $500,000 home with a $560,000 balance, they can buy it for $475,000 and FHA insurance absorbs the rest.
4. Walk away. A deed in lieu of foreclosure hands the property to the lender. Nothing further is owed. No deficiency, no claim on the estate.

The two clocks

Timing is where families get into trouble, almost always because nobody knew the deadlines existed.

• 30 days. After the servicer learns of the death, it sends a due-and-payable notice. Heirs should respond promptly and in writing, stating their intent — sell, refinance, or convey. Silence is what triggers foreclosure proceedings, not the debt itself.
• Six months, extendable to twelve. Heirs generally have six months to settle the loan, with two three-month extensions available if the home is genuinely listed and progress is being shown. Extensions are granted on evidence, so document everything.

If preserving the inheritance is the point

Then read the full downside case before going further — the erosion of what you leave behind is the drawback that matters most to families, and it deserves to be understood rather than managed around.

Then be clear-eyed. A reverse mortgage spends equity. If you live in the house for twenty more years, most of it may be gone. Options that leave more behind:

• Borrow less than you qualify for. Nothing requires you to take the maximum, and a smaller balance compounds more slowly.
• Take a line of credit and leave it alone. Interest accrues only on what you draw. An untouched line costs almost nothing and grows in the meantime.
• Make voluntary payments. There is no prepayment penalty. Paying just the interest each month holds the balance flat and preserves the equity entirely.
• Look at life insurance alongside it. Some families use a policy to replace the equity the loan consumes. Worth pricing.

If your children are already involved in the decision — and they usually should be — there is a page written for them rather than for you, covering the questions worth asking and the warning signs of a bad pitch.

And if none of those work, the honest conclusion may be that a reverse mortgage is not the right instrument for your situation. Here is what else there is.