Children do not normally take over the loan personally simply because they inherit the estate. The reverse mortgage is repaid from the estate, usually when the home is sold. Negative equity protection applies to eligible Australian loans, but older contracts and any separate obligations need checking.
Question
Will my children have to pay anything back?
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Short answer
The detail
Children do not normally take over the loan personally simply because they inherit the estate. The reverse mortgage is repaid from the estate, usually when the home is sold. Negative equity protection applies to eligible Australian loans, but older contracts and any separate obligations need checking.
When the last borrower dies, the debt becomes an obligation of the deceased estate.
The executor should contact the lender, obtain an updated payout figure and confirm the required repayment process.
The beneficiaries will generally have two broad options:
- Sell the property and repay the loan from the sale proceeds.
- Repay or refinance the reverse mortgage using other funds and retain the property.
After the loan and selling costs are paid, the remaining proceeds form part of the estate.
The beneficiaries do not simply inherit the original home free of the reverse mortgage. They inherit the estate’s remaining interest in the property after the secured debt has been dealt with.
The no-negative-equity protection generally means the lender cannot recover more than the property’s market value for protected Australian loans.
Repayment periods and any available extensions depend on the lender and contract. Estate planning should be completed before borrowing so that the executor knows who to contact and what the family intends to do.
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Sources
Useful tool: try our projection calculator with your own example figures.
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