Divorces between older couples are increasingly common. But rising numbers don’t make them any less complicated, especially when it comes to splitting assets. Reverse mortgages in place before the divorce may be impacted in multiple ways. Additionally, new reverse mortgages taken as part of or after a settlement may also offer an attractive option. Either way, there are several factors to consider when thinking of a reverse mortgage after a divorce.
The following frequently asked questions look at reverse mortgages after a divorce both from the perspective of an existing reverse mortgage and the possibility of taking a new reverse mortgage as a part of the divorce process.
Does Divorce Make a Reverse Mortgage Come Due?
Whether or not a divorce causes a reverse mortgage to come due depends on who is on the loan and what they decide.
If both spouses are on the reverse mortgage loan, whether the loan becomes due depends on loan guidelines. When the loan is in good standing and one spouse moves out, the mortgage will not come due. As long as one of the borrowers remains in the home, the reverse mortgage terms will remain unaffected.
In cases where only one spouse is the borrower and moves out, the reverse mortgage will come due. The borrowing spouse can sell the home or refinance to repay the reverse mortgage.
Options for Reverse Mortgages in Place Before Divorce
In cases where a couple jointly entered the reverse mortgage during the marriage, then at the time of the divorce, they have the following options:
- Sell the home. If neither spouse wants to keep the house, the sale can pay off the reverse mortgage. The two parties can split the remaining proceeds.
- One spouse keeps the home. The existing reverse mortgage can remain in place if the divorce settlement allows one borrowing spouse to stay in the home. Depending on the circumstances of the divorce, however, it may be preferable to refinance and for the spouse keeping the home to take out a new reverse mortgage in their name alone.
- Refinance the reverse mortgage. If there is enough equity in the home, one spouse may refinance in their name alone.
What if a Borrower With a Reverse Mortgage Gets Remarried?
Borrowers can’t add new spouses to an existing loan. You may be able to refinance and add your new spouse to the new reverse mortgage.
Can a Reverse Mortgage Fund a Divorce Settlement?
Reverse mortgages can be useful tools in divorce settlements. Say one spouse wants to stay in the marital home but can’t afford to buy the second spouse out. A new reverse mortgage could fund a divorce settlement for the spouse who’d like to stay in the home.
The spouse who stays must be able to maintain the property and pay requisite fees, insurance, and taxes. This spouse may use the proceeds to pay the other spouse as a part of the divorce settlement.
Taking a Reverse Mortgage as a Part of Divorce Proceedings
Getting divorced later in life naturally brings fears of financial insecurity and housing instability. For the spouse who stays in the home, a reverse mortgage may eliminate monthly payments and supplement income. It is also a viable strategy to limit housing expenses in later years and provide financial peace of mind post-divorce.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.