Reverse Mortgage After Divorce: Is It Right for Your Situation?

A reverse mortgage can be a financial lifeline for older homeowners, allowing them to convert home equity into cash without making monthly mortgage payments. But when a reverse mortgage intersects with divorce, the situation becomes significantly more complicated. Questions about who can stay in the home, what happens to the reverse mortgage balance, and how the equity is divided require careful analysis.

This guide explores whether a reverse mortgage is the right option for your post-divorce situation, how existing reverse mortgages are handled in divorce, and the eligibility requirements and considerations for obtaining a new reverse mortgage after divorce.

What Is a Reverse Mortgage?

A reverse mortgage, most commonly a Home Equity Conversion Mortgage (HECM) insured by the FHA, allows homeowners aged 62 or older to borrow against their home equity without making monthly mortgage payments. Instead of paying the lender each month, the lender pays you, either in a lump sum, monthly payments, a line of credit, or a combination of these options.

The loan balance grows over time as interest and fees accrue, and the loan is repaid when the last borrower leaves the home, either through sale, moving out, or passing away. Key requirements include being at least 62 years old, owning the home outright or having substantial equity, the home being your primary residence, and completing a HUD-approved counseling session.

How Existing Reverse Mortgages Are Handled in Divorce

Both Spouses Are on the Reverse Mortgage

If both spouses are listed as borrowers on the reverse mortgage, the situation is relatively straightforward. The spouse who remains in the home continues as a borrower, and the loan terms generally remain unchanged. The departing spouse's interest in the property is addressed through the divorce settlement, typically by adjusting the overall property division to account for the home equity.

However, once the departing spouse moves out and is no longer using the home as their primary residence, this can trigger certain provisions of the reverse mortgage agreement. Consult with your reverse mortgage servicer and your attorney to understand how the departure of one borrower affects the loan terms.

Only One Spouse Is on the Reverse Mortgage

If only one spouse is listed as a borrower and they are the one who leaves the home, the reverse mortgage may become due and payable because the borrower no longer occupies the home as their primary residence. This can force a sale of the home even if the non-borrower spouse wants to remain.

Recent rule changes have provided some protection for non-borrowing spouses. If you were legally married and living in the home when the reverse mortgage was taken out, and you meet certain other criteria, you may be classified as an eligible non-borrowing spouse and allowed to remain in the home after the borrowing spouse moves out. However, you cannot receive any additional proceeds from the reverse mortgage, and you must continue to meet all loan obligations including property taxes, insurance, and maintenance.

Getting a New Reverse Mortgage After Divorce

Eligibility After Divorce

If you are 62 or older and received the marital home in your divorce settlement, a reverse mortgage may be worth considering as a way to access your home equity without monthly mortgage payments. You must be the sole owner of the home, meaning your ex-spouse must have been removed from the title. You must also have sufficient equity in the home, as the amount you can borrow depends on your age, current interest rates, and the home's appraised value.

Using a Reverse Mortgage to Buy Out Your Spouse

An innovative approach that some divorcing homeowners use is the HECM for Purchase program, which allows you to purchase a new home using a reverse mortgage. However, more relevant to divorce situations is using a traditional reverse mortgage to fund the buyout of your spouse's equity share. You would refinance from any existing traditional mortgage into a reverse mortgage, using the proceeds to pay off the existing loan and pay your ex-spouse their equity share.

Considerations Before Getting a Reverse Mortgage

Before pursuing a reverse mortgage after divorce, carefully consider that the loan balance grows over time, reducing your equity and the inheritance you leave to your heirs. If you need to move in the future, whether for health reasons, to be closer to family, or for any other reason, the reverse mortgage becomes due. Property taxes, insurance, and maintenance remain your responsibility, and failure to maintain these can result in default. The costs of reverse mortgages, including origination fees, mortgage insurance, and closing costs, can be substantial. And a reverse mortgage may affect your eligibility for certain public benefits such as Medicaid.

A mortgage specialist with reverse mortgage experience can help you evaluate whether this option makes sense for your specific situation and financial goals.

Alternatives to Reverse Mortgages After Divorce

Reverse mortgages are not the right choice for everyone. Consider these alternatives: selling the home and downsizing to a less expensive property that you can afford on your post-divorce income, a traditional home equity loan or HELOC if you can afford the monthly payments, renting out a portion of the home to generate income, or exploring state and local programs that offer property tax relief, home repair assistance, or other support for older homeowners.

Frequently Asked Questions

Can I stay in the home if my spouse has the reverse mortgage?

It depends on whether you are a co-borrower or an eligible non-borrowing spouse. Recent rules offer some protections for qualifying non-borrowing spouses.

Can a reverse mortgage be divided in divorce?

The mortgage itself is not divided. The home equity, after accounting for the reverse mortgage balance, is divided as part of the property settlement.

What age do I need to be for a reverse mortgage?

You must be at least 62 for a standard HECM reverse mortgage. Some proprietary products may have different requirements.

Will a reverse mortgage affect my divorce settlement?

An existing reverse mortgage reduces the available equity. An accurate payoff statement is essential for determining the true equity for division.

Use our home equity calculator to estimate your current equity position.