Due to litigation pressure and loud voices of non-borrowing spouses that have abruptly found themselves without a home upon the passing of the borrowing spouse, the government has attempted to unravel the complexity of this issue, thereby removing risk for the surviving spouse.
Until the new rules take effect August 4th 2014, a non-borrowing spouse, defined as someone younger than 62 years of age, must be removed from the deed and cannot be on the mortgage. When the borrowing spouse dies, the loan comes due and the benefits cease leaving the non-borrowing spouse in a very bad predicament with no place to live in a short period of time.
The program changes are not a total fix but will allow a non-borrowing spouse some benefits. The HECM Reverse Mortgage will no longer become due and payable upon the death of the borrowing spouse. This will allow the surviving non-borrowing spouse to continue to live in the home as their primary residence with partial benefits. The primary benefit is that the mortgage will still accrue internally so no forward principal and interest payments will be required. However, the surviving spouse will immediately lose access to any credit line, term or annuity payment that may have been established with the Reverse Mortgage. In other words, any supplementary benefits from the Reverse other than the current mortgage will cease.
In summary, as I have stated in the past, the real solution is to avoid the non-borrowing spouse issue completely. Unless the configuration of the new loan allows for all the eligibility up front, like the HECM Standard Fixed Rate, you are better off waiting until the younger spouse reaches 62 years of age and put them on the loan. Having said that, a Reverse Mortgage is a wonderful long term planning and benefit vehicle when tailored properly.
George H. Omilan