Home Equity Options for a Surviving Spouse

What Happens to a Joint Mortgage When a Spouse Dies

Whose name was on the loan decides most of what happens next. The ownership papers (the deed) and the loan papers (the note and mortgage) are separate documents, and a spouse can appear on one without the other.

Co-borrower. A co-borrower is a person who signed the loan and is legally responsible for repaying it. When both spouses were co-borrowers, the survivor was already on the loan and stays responsible for it. No new loan is needed to keep the home. The payments simply continue under the existing terms.

Sole borrower. When only the spouse who died signed the loan, the surviving spouse usually still inherits the home. The Garn–St. Germain protections described above generally keep the lender from calling the loan due just because of that transfer. Even so, the survivor still has to work with the company that handles the loan, and the payments still have to be made to keep it current.

That company is the servicer: the business that collects the monthly payments, sends statements and answers questions about the loan. It may or may not be the lender that first made the loan. The servicer is the usual first point of contact after a death.

A surviving spouse in this position is often called a successor in interest, meaning a person who inherits or receives an ownership interest in a home. Contacting the servicer, saying the borrower has died, and asking what documents it needs to recognize the new owner is typically how the loan record gets updated. Which path to take after that depends on the household's own finances.

Ways to Access Your Equity Without Selling the Home

Staying in the house is often the goal, and sometimes extra money is needed to make that possible. There are several ways to borrow against a home's equity, and each one trades something. A wider look at these appears in the guide to getting cash without selling.

Home equity loan. This is a lump-sum loan secured by the home. "Lump sum" means the money is paid out all at once. "Secured" means the home is pledged as security, so the lender can take it through foreclosure if the loan is not repaid. The borrower receives one payment and repays it in fixed monthly installments. The trade is a new monthly bill on top of any existing mortgage.

Home equity line of credit (HELOC). This is a revolving credit line secured by the home. "Revolving" means the borrower can draw money, repay it and draw again, up to a set limit, during the draw period. The borrower pays interest on what is drawn. A HELOC agreement may allow the lender to freeze or reduce the line under certain conditions, so a survivor who held a joint line can read the agreement or ask the servicer how a borrower's death affects it.

Cash-out refinance. To refinance is to replace an existing loan with a new one. In a cash-out refinance, the new mortgage is larger than the old one, and the borrower receives the difference in cash. The trade is a bigger balance and new monthly payments. A survivor applying alone typically has to meet the lender's income and credit standards on a single income.

Reverse mortgage (HECM). A Home Equity Conversion Mortgage, or HECM, is the federally insured reverse mortgage program, open to homeowners who are, or whose spouse is, at least 62 (12 U.S.C. § 1715z-20(b)(1)). That age definition is separate from the rules that let a spouse who did not sign the loan stay in the home after the borrower dies; those rules are covered in the next section. A HECM requires no monthly mortgage payment. But interest and fees are added to the loan balance each month, so the amount owed grows and equity shrinks (CFPB). The borrower must live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. The loan comes due when the last surviving borrower or Eligible Non-Borrowing Spouse dies, sells the home, or no longer lives there as a principal residence (CFPB). Federal rules let a borrower choose how a lender pays out, including a line of credit, monthly payments for a set term, or monthly payments for as long as the borrower stays in the home (tenure), subject to the loan's terms (12 U.S.C. § 1715z-20(d)(9)). The details of how a reverse mortgage works are worth reading slowly.

Reverse Mortgage Protections for a Surviving Spouse

Here the question is narrower: what if the spouse who died had a HECM, and the survivor was not a borrower on it? Federal rules address this case directly.

An Eligible Non-Borrowing Spouse is a husband or wife who did not sign the HECM as a borrower but who meets HUD's criteria to stay after the borrower dies. Under 24 C.F.R. § 206.55(c), the spouse must:

• Have stayed married. The spouse must have been married to the borrower at loan closing and remained married for the rest of the borrower's lifetime.
• Have been named. The spouse must have been disclosed to the lender at origination and "specifically named as an Eligible Non-Borrowing Spouse in the HECM mortgage and loan documents."
• Live in the home. The spouse must have occupied, and must continue to occupy, the property as a principal residence.
• Meet any added requirements. These are what HUD may set by Federal Register notice.

When those conditions hold, the regulation provides a deferral period. That means the loan's "due and payable status will be deferred," so repayment is put off rather than demanded, "for as long as the Eligible Non-Borrowing Spouse continues to meet the Qualifying Attributes" and the regulation's other requirements (24 C.F.R. § 206.55(a)). The loan's ongoing obligations, the same taxes, insurance and upkeep listed in the HECM description above, still apply during this time (CFPB). HUD publishes the full criteria.

Two limits matter. An Eligible Non-Borrowing Spouse will not get any money from the reverse mortgage, and the spouse protections the CFPB describes apply to HECMs with FHA case numbers assigned on or after August 4, 2014 (CFPB). A spouse who did not meet the qualifying attributes at origination "is not subsequently eligible for a Deferral Period when the borrowing spouse dies" (24 C.F.R. § 206.55(c)(2)). The CFPB notes that qualifying can be difficult and suggests an attorney or a HUD-approved housing counseling agency.

The deferral period does not change the growing balance. When it ends, keeping the home may mean paying the loan off, which the CFPB says can be the full loan balance or 95 percent of the home's appraised value, whichever is less, or else refinancing or selling (CFPB).

Easing the Budget Without Taking On a New Loan

A new loan is not the only answer, and for some households it is not needed at all. Several other paths can ease the budget, each with its own trade.

A budget and benefits check. Before borrowing, it helps to see what money is actually coming in: a pension, retirement accounts, and Social Security. Social Security survivor benefits are payments that may be made to a widow or widower based on the late spouse's work record. The Social Security Administration sets who qualifies and how much. The trade here is only time and paperwork, but the answer may show the gap is smaller, or larger, than it felt.

Property tax relief. States and counties offer programs such as property tax deferrals, exemptions or freezes, some aimed at older homeowners or surviving spouses. These vary by state and county. The local assessor or tax collector is the source for current rules. A deferral postpones the tax rather than forgiving it.

Help from family. Some surviving spouses receive support from adult children or other relatives. This keeps the equity untouched, but it brings shared expectations that families tend to talk through openly.

Selling or downsizing. Selling the home and moving to a smaller place or a rental can free up equity without new debt. The trade is leaving a home that may hold decades of memories, plus the costs of selling and moving. The guide to staying in your home after retirement sets the staying-versus-moving question side by side.

Questions to Work Through Before Choosing an Option

Choosing among these options usually goes easier once a few facts are clear. The questions below are a way to organize thinking, not steps to follow in order.

Is there a mortgage, and whose name is on it? The answer decides whether the survivor is already a co-borrower or a successor in interest working with the servicer.

Was there a reverse mortgage? If so, the next question is whether the survivor was named as an Eligible Non-Borrowing Spouse in the loan documents, since the protections described above depend on it.

What does monthly income look like now? A home equity loan, a HELOC and a cash-out refinance all bring monthly payments. Whether one income can carry them is central.

Is the plan to stay for good? Staying long-term and moving in a few years point to different options. Someone weighing both may find the guide on high equity and low income useful.

Who can help with the parts a guide cannot? For reverse mortgage questions, counseling is part of the law. A HECM borrower must receive counseling from "an independent third party" not associated with or paid by those originating or funding the loan or selling other financial products (12 U.S.C. § 1715z-20(d)(2)(B)). HUD's lender guide states that counseling by a HUD-approved HECM counselor is required (HUD). HUD lists counselors through its HECM Counselor Roster or at (800) 569-4287 (HUD). For title and estate questions, such as how the home passed and whose name belongs on the deed, an attorney can say how the rules apply to the family's facts.