What to Know as a Non-Borrowing Spouse
When making a big financial decision, it’s a good idea to take your family and loved ones into account. Getting a reverse mortgage may enable you to live a more secure retirement, but what if you or your spouse is a non-borrower? This label may have undesirable ramifications further down the road. If you’re wondering how the title of non-borrowing spouse (NBS) may affect the outcome of the loan, you’ve come to the right place. However, before we dive into the details, let’s figure out whether or not you – or your loved one – is a non-borrowing spouse.
Non-Borrowing or Not?
A spouse may not be a borrower on the loan for several reasons. For example, a spouse who is younger than 62 will not qualify as a borrower but may still be included on the loan as a non-borrowing spouse. This may be a wise choice if both spouses want to get a reverse mortgage as soon as possible – even if the younger spouse cannot be a borrower.
As long as you satisfy the following requirements, you may be considered a NBS. If you: live in or were married in a country/state that recognizes your marriage, you were married when the loan closed, you are not listed as a client, and you are age eligible and have not been on title for at least six months (in the case where the NBS doesn’t want to be on the loan), then you may qualify as a non-borrowing spouse.
Thanks to the recent Reverse Mortgage Stability Act, non-borrowing spouses have benefitted from many new reforms that help protect their interests. As part of a series of regulations designed to safeguard borrowers and ensure greater security for the program in general, the federal government has now instituted new legislation enabling non-borrowing spouses to remain in their home even after the borrowing spouse has passed away.* As long as the spouse stays current on property taxes, insurance costs, and maintenance expenses, in addition to living in the house as a primary residence and staying married to the borrower through the end of his or her lifetime, the NBS may remain in the home.
The Deferral Period
After the last surviving borrower has passed away, the loan will enter a deferral period. Basically, the loan proceeds will be frozen (meaning that the NBS won’t be able to withdraw additional funds) and the bank won’t try to collect on the loan as long as the non-borrowing spouse meets all mandatory obligations. What are those obligations, you might ask?
The loan will not become due and payable as long as: the remaining spouse has been listed on the loan as the NBS since the beginning of the loan, the spouse has been declared and listed on our loan documents as such, the property continues to be the spouse’s primary residence, the spouse does not remain in a temporary healthcare facility for greater than twelve months, the spouse gets on title or shows that he or she has a legal right to reside in the property within ninety days of the borrower’s passing, and the NBS has made sure that all other HECM requirements such as taxes, insurance, and maintenance expenses have been resolved. Take note that non-borrowing spouses do not benefit from this deferral period or other protections in the state of Texas.
Right for You?
Your status as a non-borrowing spouse will prevent you from withdrawing proceeds after the passing of the last remaining borrower. However, if one spouse is much younger than the other, this age discrepancy may affect the total amount of proceeds you could receive with your loan. Payouts depend heavily on the age of the youngest spouse, therefore incentivizing borrowers with young spouses to wait. But, at the same time, a typical reverse mortgage line of credit will grow over time and rewards borrowers who get the loan as early as possible. So, regardless of which type of reverse mortgage you’re looking into, it’s generally a good idea to consult with a financial advisor before determining your next course of action.
At The Reverse Team, we’ve included both spouses on the loan long before this practice became standard in the industry. To protect younger spouses and ensure that they are not led astray, both must attend typical reverse mortgage counseling prior to acquiring a HECM. *Homeowner is still responsible for taxes, insurance, and property maintenance.