- When you pass away, your mortgage doesn’t disappear, and the lender still needs to be repaid.
- If you inherit a property that has a mortgage, you will be responsible for making payments on that loan, but there are a few options available.
- If you own a home, planning for the future and deciding what happens to your mortgage when you die is important.
Nobody likes to think about their own mortality, but the reality is that you have to face who and what you leave behind when you die. Especially if you own a home you share with others.
If you have a mortgage, you might worry about what that means for your heirs and loved ones. How will they handle the loan? Who will be responsible for making payments? Will they even be able to keep the home? Let’s look at what happens to your mortgage when you die.
Who takes over your mortgage when you die?
When you pass away, your mortgage
doesn’t suddenly disappear. Your mortgage lender still needs to be repaid and could foreclose on your home if that doesn’t happen. That’s because a mortgage is a lien on the property that remains in place until the loan is repaid, even if the borrower dies. The same applies if other debts, like outstanding home equity loans or lines of credit
, are attached to the property.
What happens to a mortgage if someone dies without a will?
If you applied for your mortgage with a co-borrower
or co-signer, the solution is relatively simple: The other party is obligated to continue making payments on the loan. If you don’t have a co-borrower or co-signer on your house title
, the responsibility falls to the executor of your estate, who should continue making payments using funds from your estate while the home’s fate is sorted out. The rub is if the estate doesn’t have sufficient funds or assets, it can liquidate to pay the mortgage. That’ll create complications for heirs.
If you bequeath your home to someone or have a joint owner with the right of survivorship
, your heir has to decide what to do with the home and the mortgage. Generally speaking, the person who inherits will either need to assume the mortgage and start making payments or arrange for the sale of the property.
When to notify the mortgage company?
Among all of the other things you’ll need to do after a loved one dies, you’ll also need to let their mortgage company know that they’ve passed away. If you’re wondering when to notify the mortgage company of death, the answer is: as soon as possible.
You’ll want to give yourself ample time to locate and submit any necessary documents, including a death certificate, and assume the mortgage quickly to avoid long-term problems with the lender. You also want them to update mailing and email addresses.
Inheriting a property with a mortgage
Inheriting can be scary: Many mortgages include a due-on-sale or due-on-transfer clause that requires full repayment of the loan in the event of a change in ownership.
However, there are federal and state laws in place that override those clauses in this sort of situation, mandating a lender to work with a surviving spouse or family member who inherits a mortgaged home. An estate attorney can fill you in on your rights in your state.
If you inherit a property that has a mortgage, you will be responsible for making payments on that loan. However, there are a few ways to manage your newfound asset:
Assume the Mortgage
If you are the sole heir, you could contact the mortgage servicer and ask to assume the mortgage or sell the property. You could also choose to let the lender foreclose — though there’s a risk of deficiency judgment against you if they sell the home and the proceeds don’t cover the mortgage.
If you want to assume the loan, you can work with the servicer to transfer the loan
to you. Keep in mind that there might be a fee associated with assuming the mortgage.
Of course, if you sell the property, you’ll have to use the proceeds to pay off the loan before you can pocket any windfall.
Refinance the Loan
Some lenders are willing to be flexible if you’re not in the financial position to assume the loan but don’t want to sell. You might be able to refinance the loan to secure a lower payment or extend the term so it’s more affordable. Depending on the loan’s interest rate in comparison to current rates, you might be better off getting this other mortgage.
Inherited Mortgage With Multiple Heirs
Things get more complicated if multiple heirs inherit an interest in the home. Each party will need to agree on what to do with the property — one might have to buy out the others’ shares, for instance.
If none of the heirs are interested in living in the home, selling it might be the best route. Alternatively, if one or more heirs want to convert it to a rental, consider the ramifications of changing it to an investment property: You might need to get a new mortgage since the original loan was for a primary residence, not an investment property.
Whatever heirs decide, it’s best to enlist the help of an estate or real estate lawyer in these types of situations.
Do heirs need to requalify for the mortgage?
Borrowers must typically meet “Ability to Repay” requirements before a mortgage lender can approve a loan. These rules help protect borrowers from predatory loans they wouldn’t be able to afford.
There’s an exception to this rule if you inherit a home, however. Heirs don’t have to requalify for the mortgage on the home they inherited. This gives them an opportunity to keep the home and assume the loan without having to meet the ability-to-repay requirements. If your goal is to keep the property, though, be sure you can actually afford the mortgage before committing to it.
If you want to change the mortgage terms, however — such as refinancing — you’ll need to qualify for a new loan and meet all of the lender’s eligibility requirements.
How to assume a mortgage
If you’ve inherited a mortgage, you can typically work directly with the servicer to take over the loan, but you might also decide to get outside help. Here’s how to assume a mortgage from a deceased family member.
- Find a reliable lawyer. It isn’t required, but hiring a lawyer will simplify the process and relieve some of the stress of assuming your loved one’s mortgage — especially if you’re grieving.
- Gather necessary documents. You might need to provide proof that you’re the rightful inheritor of the property or the executor of the estate, so you’ll want to collect relevant documents. To transfer the title, you will need proper authorization/paperwork, including the deed. If you can’t locate it, contact your local records office (e.g., the county clerk) for a copy. You can usually get a copy for a modest fee or pay more for a certified copy (which lenders usually require).
- Contact the mortgage lender or servicer for next steps and information. Ask about things like the outstanding balance, the monthly payment and other essential details. If you have a lawyer, you can ask them to help you communicate with the servicer, especially if the servicer is less than helpful with your situation.
Remember that you don’t have to go through the underwriting process or requalify for the mortgage to assume it, but you’ll likely need to provide a certified copy of the borrower’s death certificate (and potentially the borrower’s will). If you are a joint owner, you will likely have to show the deed with your name on it.
Once you’ve assumed the loan, you can continue making payments on it or opt to refinance.
Managing someone’s affairs after they’ve died is challenging and, sometimes, confusing. To help make the process a little easier, here are some ways you can prepare for what happens to your mortgage when you die so your loved ones know exactly what to do when the time comes:
- Consider mortgage protection insurance – If you can’t afford or can’t get approved for traditional life or disability insurance, you can take out mortgage protection insurance (MPI) to ensure your partner or loved ones hold onto your house after you die.
- Plan your estate – Having an estate plan at the time of your death can make life much easier for your loved ones. That’s because good estate plans specifically outline who receives what, which can prevent your family members from wondering about your wishes or fighting amongst themselves. Estate planning is also a great way to minimize taxes on your assets.
- Create a last will and testament – If you own a home, it’s important to plan for the future and decide what happens to a mortgage when you die. Having a clear last will and testament that describes what should be done with your mortgage, bank accounts, and other assets will help your loved ones navigate what to do with your estate.
- Consider a life insurance policy – A good life insurance policy can also help save your heirs from financial stress (but be sure to compare the differences between life insurance and mortgage protection insurance — these are separate policies with separate coverages).