What Is a Surviving Non-Borrowing Spouse?

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DEFINITION

A surviving non-borrowing spouse is someone who is not included as a co-borrower on their spouse’s reverse mortgage, and whose borrowing spouse has passed away.

Definition and Examples of a Surviving Non-Borrowing Spouse

A non-borrowing spouse is a person whose spouse has a reverse mortgage on their home, but they are not included as a borrower. When the spouse with the reverse mortgage dies, the balance of the loan becomes due and the non-borrowing spouse may not withdraw any unused funds.

For example, say you are married. Your spouse is 62 and gets a reverse mortgage on your shared home. However, you are 55 and you don’t qualify to get a reverse mortgage yet, as the minimum age is 62. As a result, you become a non-borrowing spouse. If your spouse passes away, you would become a surviving non-borrowing spouse.

How a Surviving Non-Borrowing Spouse Works

When a spouse with a reverse mortgage passes away, leaving behind a surviving non-borrowing spouse, what happens to the home and the outstanding loan depends on the terms of the loan.

A home equity conversion mortgage (HECM) is a reverse mortgage insured by the federal government. It has protections for surviving non-borrowing spouses through Mortgage Optional Elections (MOEs).

MOEs defer the loan’s payable status until the eligible surviving non-borrowing spouse moves out of the home, passes away, or fails to meet the terms and conditions of the loan. However, the surviving non-spouse cannot receive any payments from the loan.

HECM terms and conditions require a borrower and surviving non-borrowing spouse to annually certify that they are keeping up with a home’s property charges and maintenance. Property charges can include flood insurance, HOA dues, homeowners insurance, property taxes, and more.

Let’s look at an example. Say your spouse had an HECM and died, and you were eligible for the MOE option. You could continue to live in the house and wouldn’t be responsible for repaying the outstanding loan. However, you would have to keep up with the home’s property taxes, homeowners insurance, and HOA dues.

However, if you married your spouse after they got the HECM, you wouldn’t be eligible for the MOE. So the reverse mortgage balance would become due when they died. In that case, you wouldn’t be able to stay in the home unless you could pay off the balance of the reverse mortgage without selling it.

The MOE program is only in place with HECMs from participating lenders. Terms and conditions for other reverse mortgage products will vary by lender and should be reviewed carefully.

Requirements for an Eligible Surviving Non-Borrowing Spouse

To be eligible for a MOE on a HECM loan, a surviving non-borrowing spouse must:

  • Have been married to the borrower (or in a committed relationship akin to marriage) when the loan closed
  • Live in the home as their principal residence currently and when the loan closed
  • Not have an HECM loan in default and or payable for any other reason.
  • Have their name listed on the loan documents as a non-borrowing spouse

When these requirements are all met, the borrower will be able to defer an HECM’s outstanding balance.

Types of Non-Borrowing Spouses

When it comes to HECMs, there are two types of non-borrowing spouses: eligible and ineligible. Eligible non-borrowing spouses qualify for a MOE that enables them to defer the payment of the HECM while non-eligible spouses do not. To be eligible, you must meet the requirements.

Pros and Cons of Being a Surviving Non-Borrowing Spouse

Pros
  • Possible loan deferral option

Cons
  • Balance may become due

  • Can’t receive reverse mortgage payments

  • Responsible for property charges and maintenance

  • Protections vary by lender

Pros Explained

  • Possible deferral option: If you are an eligible surviving non-borrowing spouse with an HECM loan, you may be able to defer the outstanding balance and remain in the home. 

Cons Explained

  • Balance may become due: If you are not eligible or have a reverse mortgage without any protections for surviving non-borrowing spouses, the outstanding balance may become due. As a result, you may have to sell the house.
  • Can’t receive HECM payments: If you are an eligible spouse who can defer the HECM balance, you will not receive any payments from the loan.
  • Responsible for property charges: Eligible non-borrowing spouses who defer HECM balances will still be responsible for property charges and maintenance.
  • Protections vary by lender: Protections for non-borrowing spouses aren’t guaranteed. They will vary by lender and by reverse mortgage loan type.

What It Means if You’re a Non-Borrowing Spouse

If you’re a non-borrowing spouse on a reverse mortgage, it’s important to understand what will happen to the loan and home if your spouse passes away. Find out what type of reverse mortgage is in place and whether it has any protections for you if your spouse passes away.

Learn whether the balance becomes due upon your spouse’s death. If it does, it could be difficult for you to keep the home, depending on your financial situation. When you understand the terms, you can prepare accordingly.

If you are a non-eligible surviving non-borrowing spouse, you can look into options to pay off a balance, such as home refinance options or using life insurance with a cash value component so you can avoid selling the home.

Key Takeaways

  • A surviving non-borrowing spouse is someone who was not a co-borrower on their deceased spouse’s reverse mortgage.
  • FHA-backed HECM loans have protections to help eligible surviving non-borrowing spouses keep their homes.
  • To be eligible for a MOE, you will have to meet various requirements.

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