Many seniors who are retiring and in need of money turn to reverse mortgages when they have equity on their home. Many people don’t know that reverse mortgages are due when their home is not in good condition.
What happens to the reverse mortgage if their property is damaged by a fire?
Takeaways from the Key Notes
- If you don’t maintain insurance, your reverse mortgage will be due.
- If you fail to maintain the property, your reverse mortgage will become due.
- Your insurance company will repair any damage to your home caused by a fire and you will not have to pay the balance.
- You may be unable to repair your property, and you could lose your home due to foreclosing.
What is a reverse mortgage?
A reverse mortgage is different from a forward mortgage. Reverse Mortgages are designed specifically for retirees with homes that they own or who have very little left on their mortgages. The borrower can use the equity in their house as security. The reverse mortgage is only due if the borrower dies or does not maintain the property with homeowners’ insurance.
Reverse mortgages and Insurance
To protect the lender’s investment, you must maintain homeowners insurance on your property.
1,291,500
The number of fires reported in the United States for 2019, the latest year that data was published. 2
Reverse mortgages with insurance
In the event that your home is damaged by a wildfire and you have adequate home insurance, your home will be fixed and your reverse mortgage won’t become due. Make sure you discuss your coverage limits and coverage amounts with your agent. This will ensure that your home is adequately covered in case of fire.
Insurance coverage is often not enough to replace an entire home due to today’s high costs of construction and materials. The Marshall Fire in Boulder County, Colo. burned over 1,000 homes. Insufficient reverse mortgage coverage will cause problems for those homeowners who have a reverse loan.
Reverse mortgages with inadequate or no insurance
You must maintain your property insurance to qualify for a reverse mortgage. You will be responsible for your reverse mortgage if you do not have property insurance. This is true even if your home has been damaged by a fire. In this case, you’ll receive a Notice of Default. This usually includes certain appeal rights as well as a deadline to rectify the problem.
You may still have options if your insurance coverage is not enough to replace or repair your home. Contact your local Ageing Services Organization for information on local programs to help seniors repair or replace their home.
You’ll have a wider range of options if your home is damaged by a wildfire. This is especially true if the Federal Emergency Management Agency has declared a disaster. FEMA can provide funds to homeowners who have been affected by a disaster to help them repair or replace the damage that their insurance doesn’t cover. FEMA may also be able help with housing costs. 5
My reverse mortgage will be due if I have a house that is damaged by fire.
Your reverse mortgage won’t become due if your home is damaged by a fire as long as it gets repaired. If your home isn’t repaired because of inadequate insurance, then your reverse mortgage becomes due.
How can I pay for my housing if it is damaged by a fire in my home?
Your insurance policy will determine how much you pay for temporary housing if your house is destroyed in a fire. Your insurance may cover temporary housing, toiletries and other necessities if your policy includes loss of use coverage. Your local Aging Services may be able help you find housing if you do not have insurance.
Will the Federal Emergency Management Agency help me after my house is damaged by a fire or other disaster?
FEMA will not provide assistance if your house is damaged by a fire. If your home is damaged by a wildfire declared a disaster, you may be eligible for grants, assistance with temporary housing and other services.
Bottom Line
It is difficult to survive fire damage in your home. If you have reverse mortgage, you should ensure that you are covered by adequate insurance to repair your house in the worst case scenario. You will need to rely on local agencies for help if you do not have enough coverage.
Adsrocks asks writers to use primary resources to support their writing. White papers, government statistics, original reporting and interviews with experts in the industry are all examples. Where appropriate, we also refer to original research by other reputable publishers. Our editorial policies will tell you more about our standards for producing accurate and unbiased content.
ARTICLE SOURCES
- U.S. Department of Housing and Urban Development. ” How HECM Programs Work.”
- U.S. Fire Administration. “U.S. Fire Statistics.”
- Boulder County. ” Marshall Fire Recovery : Insurance.”
- Consumer Financial Protection Bureau. ” How Should I Respond If I Have Reverse Mortgage Loans and Received a Notice Of Default Or Foreclosure?
- Federal Emergency Management Agency. Housing and Other Needs.
