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What happens to your mortgage when you die?
Although it’s difficult to talk about, if someone passes away before paying off their mortgage, it’s understandable that you might have some questions about what happens to the debt.
Depending on their situation, life insurance may cover the mortgage, but in other cases, the money may need paying off with the cash raised from selling the home.
Is anyone else responsible for paying the mortgage?
Just what happens to the mortgage depends on the deceased’s family situation. If they had a joint mortgage with their partner, for example, then the responsibility for making the mortgage repayments falls to this person. In this situation, life insurance is really important if the partner would struggle to make the payments alone.
Should someone die and their partner doesn’t earn enough to keep up with the mortgage repayments, life insurance should protect them from losing their home. Depending on the insurance policy, their partner should get either a lump sum that can be used to pay off most – if not all – of the mortgage, or monthly instalments that can be used to put towards paying off the mortgage.
If the person who died didn’t have life insurance, this can be a really difficult situation. Unfortunately, if their partner can’t continue to meet the mortgage payments, it’s likely they will have to sell the home and move out.
This is why life insurance is vital if anyone in your family depends on your income to meet essential bills.
When you sign the documents that give you ownership of your home with someone else, you have to state whether you are joint tenants or tenants in common. This could affect who ends up paying the mortgage if someone dies. You can find out more about this here.
Selling the home and using the cash
If the person who dies is the only one responsible for paying the mortgage, the mortgage is usually paid off with the money raised from selling the home.
Again, just who is in charge of selling the home depends on the family of the deceased. If the person that died has a will, they should name an executor of that will, which is the person legally allowed to handle the property and any of the assets.
Many people choose to hire a solicitor to handle selling the home, paying off the mortgage and working through the will. Although they will charge a fee for doing this, it’s often an easier route to take for family if they are grieving the loss of a loved one. Handling the sale of the house can be complicated and it’s understandable to want the responsibility to be in someone else’s hands.
Once the home sells, the money can be used to pay off the mortgage and the remaining cash distributed to the people named in the will.
Many mortgage lenders are sympathetic with this kind of situation and will wait for the property to sell first, but it’s a good idea to keep them in the loop at each stage if you’re handling the sale of the property.