The Non-Borrowing Spouse: Protections and Risks
Key Takeaways
- Both spouses no longer need to be 62 to get a reverse mortgage.
- An Eligible Non-Borrowing Spouse can stay in the home after the borrower dies.
- The younger spouse cannot access remaining loan funds.
To qualify for a Home Equity Conversion Mortgage (HECM), the primary borrower must be at least 62 years old. But what happens if you are 65, and your spouse is 58?
Historically, this was a disaster waiting to happen. Couples would remove the younger spouse from the deed to qualify for the loan. When the older spouse died, the loan became due, and the grieving younger spouse was promptly foreclosed upon and evicted.
Thankfully, the FHA changed the rules in 2014 to implement strict protections for the Non-Borrowing Spouse (NBS).
The Eligible Non-Borrowing Spouse
Under current FHA rules, if one spouse is under 62, the older spouse can still take out a reverse mortgage. The younger spouse is designated as an "Eligible Non-Borrowing Spouse."
The Ultimate Protection: If the older borrowing spouse passes away or moves into a long-term care facility, the Eligible Non-Borrowing Spouse has the legal right to remain in the home for the rest of their life, rent-free, without paying off the reverse mortgage.
To maintain this right, the younger spouse must simply continue to meet the basic requirements of the loan: paying the property taxes, maintaining homeowners insurance, and keeping the home in good repair.
The Major Financial Risk
While the younger spouse is protected from eviction, they face a severe financial shock that many couples fail to plan for.
Because the younger spouse is not a borrower on the loan, all access to reverse mortgage funds ceases immediately upon the death of the borrowing spouse.
If the couple was relying on monthly tenure payments from the reverse mortgage to buy groceries, those payments stop the day the older spouse dies. If there was $100,000 left in the line of credit, that money is permanently frozen. The younger spouse gets to keep the house, but they lose all access to the cash.
How the Loan Amount is Calculated
If you have a younger spouse, the FHA restricts how much money you can borrow.
Reverse mortgage payouts are calculated based on the age of the youngest borrower. To protect the insurance fund, the FHA will calculate your loan amount based on the age of the Non-Borrowing Spouse. Because they are younger and expected to live in the home longer, you will receive significantly less cash than if you were applying as a single 65-year-old.
Couples with a significant age gap must carefully weigh the benefit of getting cash now against the reality that the younger spouse will be cut off from those funds eventually.