Divorce and HECM Loan

Divorce often creates difficult decisions about the family home, available cash, and future housing. For homeowners who qualify, a Home Equity Conversion Mortgage (HECM) or other Reverse Equity Mortgage may provide an additional option—helping preserve liquidity, retain the family home, buy out a former spouse, or purchase another primary residence without a required monthly principal and interest mortgage payment.

FHA-insured HECM loans are generally available to homeowners age 62 and older, while certain proprietary Reverse Equity programs may be available beginning at age 55, depending on the program and state. HECM loans are subject to FHA lending limits, while proprietary programs may accommodate higher-value homes and larger loan amounts.

Possibly. Depending on the homeowner’s age, property value, existing mortgage balance, available equity, and financial qualifications, a Reverse Equity Mortgage may provide funds that can be incorporated into the divorce settlement.

It may help one spouse:

• Remain in the family home.
• Buy out the other spouse’s equity interest.
• Pay off an existing mortgage.
• Purchase another primary residence after the divorce.

Possibly. Selling the family home is not always the only alternative.

If sufficient equity is available and the homeowner qualifies, refinancing with a Reverse Equity Mortgage may allow one spouse to remain in the home while eliminating the required monthly principal and interest mortgage payment.

For someone entering retirement or living on a fixed income, reducing monthly housing expenses may also help preserve cash flow and retirement assets.

Yes, in certain situations. If sufficient proceeds are available, a Reverse Equity Mortgage may be used as part of the settlement to help satisfy the departing spouse’s equity interest.

The amount available depends on several factors, including the borrower’s age, property value, existing liens, interest rates, and the loan program.

Yes. The proceeds from a Reverse Equity Mortgage may be used to pay off an existing mortgage as part of the new transaction.

This may allow the spouse retaining the property to replace the existing loan with a new Reverse Equity Mortgage in that person’s name, subject to qualification, title requirements, and the terms of the divorce settlement.

Often, yes. With proper planning, several parts of the transaction may be coordinated, including:

• Transfer of ownership.
• Payoff of the existing mortgage.
• Payment of a former spouse’s equity interest.
• Distribution of settlement proceeds.
• Closing of the new Reverse Equity Mortgage.

Early coordination among the attorneys, mortgage professional, lender, and title or closing company can help ensure the financing is consistent with the final settlement agreement.

Divorce by itself does not necessarily cause an existing Reverse Equity Mortgage to become immediately due.

What happens will depend on factors such as who is a borrower, who remains in the home, how title is changed, and the requirements of the existing loan.

Before changing ownership, occupancy, or title, the existing mortgage should be reviewed with the attorney, lender, and Reverse Equity Mortgage professional.

With a Reverse Equity Mortgage, there is generally no required monthly principal and interest mortgage payment while the loan remains in good standing.

The homeowner must continue to:

• Pay property taxes.
• Maintain required homeowners insurance.
• Maintain the property.
• Satisfy the other requirements of the loan.

This can be particularly valuable when one household is becoming two and monthly cash flow becomes more important.

Yes, if you qualify.

A Reverse Equity Purchase may allow an eligible homeowner to use a portion of divorce proceeds, savings, or other available funds toward the purchase of another primary residence and finance the remaining eligible amount with a Reverse Equity Mortgage.

This strategy may be useful when someone wants to:

• Downsize or right-size.
• Move closer to family.
• Relocate to a retirement or 55+ community.
• Purchase a more accessible home.
• Begin the next stage of life in a different residence.

Potentially. Rather than using a large portion of available cash to purchase another home outright, an eligible buyer may be able to finance part of the purchase with a Reverse Equity Mortgage.

That can allow more cash, investments, or retirement assets to remain available for future needs, emergencies, income, or other financial priorities.

Yes. The homeowner remains on title and continues to own the property.

As with other mortgage financing, the home serves as collateral for the loan. The homeowner must continue paying property taxes and homeowners insurance, maintain the property, and meet the other terms of the loan.

No. Every divorce, home, and financial situation is different.

A Reverse Equity Mortgage should be evaluated alongside other alternatives, such as selling the home, traditional refinancing, purchasing another residence, or using other assets.

The more important question may not simply be “Can I qualify for a Reverse Equity Mortgage?” It may be “Would using my home equity this way help me create a stronger financial position after the divorce?”