Underwater on a Reverse Mortgage?

You probably won't owe more than the value of the house when the loan is due.

My aunt, who lives in Las Vegas, has a reverse mortgage that she took out in 2006, when her home was valued at more than $250,000. The home is now worth just $85,000. If she dies while the home’s value is still so low, can the bank take money from her estate to cover its loss? --B.O., Yorba Linda, Cal.

If your aunt’s reverse mortgage is a home equity conversion mortgage, as most of them are, she doesn’t have to worry. "HECMs are nonrecourse loans, meaning that the borrower will never owe more than the value of the house when the loan is due, which is either when the owner moves out, sells or passes on," says Peter Bell, CEO of the National Reverse Mortgage Lenders Association. The Federal Housing Administration reimburses the lender for the difference between the home’s value and the cost of the loan, which is why borrowers have to buy mortgage insurance.

Check the loan documents or second deed to verify that it is a non-recourse loan. For more information on reverse mortgages, go to www.hud.gov (opens in new tab).

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.