Reverse mortgages are now more popular than ever before, as seniors find themselves sitting on more equity in their homes and less cash available to them in retirement than previous generations. With a reverse mortgage, seniors are able to tap into their home’s equity without having to pay until they move, pass away, or fail to keep the property in good repair.1

So what happens to their reverse mortgage when their home is damaged in a hurricane?

What Is a Reverse Mortgage?

Reverse mortgages are a way for retirees to access cash based on the equity that they hold in their home without having to make payments right away. A reverse mortgage becomes due if the borrower moves, dies, fails to remain current on property taxes and insurance, or fails to keep the property in good condition.2

Insurance Coverage and Reverse Mortgages

A major requirement of a reverse mortgage is that you must maintain homeowners insurance on the property, as the home is used as collateral for the loan. Hurricane damage isn’t excluded outright like earthquake or flood damage in traditional policies, but in coastal areas prone to hurricanes, there are typically low coverage limits and high deductibles on wind and water damage. What this means for you if you have a reverse mortgage is that you’ll either need to raise your coverage limits and lower your deductibles or make sure that you have enough cash set aside to cover the gap so that your home is repaired after a hurricane.34

Reverse Mortgages with Insurance

If you have adequate insurance with low deductibles and high coverage limits and your home is damaged in a hurricane, then your home will be repaired and your reverse mortgage will not become due.

Reverse Mortgages with No or Inadequate Insurance

Before your home is even hit by a hurricane, you could lose your home if you don’t have active homeowners insurance. You must remain current on your property insurance premiums when you have a reverse mortgage. When your coverage lapses, your reverse mortgage becomes due and you’ll receive a notice of default, which will give you a deadline for remedying the issue and appeal rights. Make sure that you appeal the decision right away and get homeowners insurance as soon as possible.6

If you can’t afford to pay your deductible, or if the coverage limits aren’t high enough to cover needed repairs and you can’t cover the difference, then you could be in trouble. If your home isn’t repaired, then your reverse mortgage will become due.7 This is why it’s vital to make sure that you have adequate coverage long before a hurricane hits. If you find yourself in this awful situation, your local aging services organization can refer you to local organizations that may have grants in place to help seniors repair their homes.8

You also may be able to get help from the Federal Emergency Management Agency (FEMA) after a hurricane hits. When FEMA declares a disaster, it makes funds and staff available to help survivors access temporary housing, emergency medical assistance, and grants that can help victims repair their homes.9

The Bottom Line

Before a hurricane ever hits, make sure that you have robust insurance coverage for wind and water damage, especially if you have a reverse mortgage. If you don’t, you’ll be on the hook for repairing your home. If you can’t afford to, you’ll have to depend on help from local organizations and FEMA, which may not be enough. Your reverse mortgage will become due, and you could lose your home to foreclosure if your home isn’t repaired after a hurricane. Make sure you’re covered now, so you don’t end up in an even worse situation after disaster strikes.7