What Happens to a Mortgage When Someone Dies?
Have you ever wondered what happens to a mortgage when someone dies? It’s an important question that, while difficult to think about, can help homeowners plan ahead and provide peace of mind for themselves and their loved ones. Here’s what to know.
Key takeaways
- Your mortgage doesn’t go away when you die — either your estate or your heirs will need to repay it.
- Creating an estate plan can help simplify the inheritance process and minimize the risk of misunderstandings and conflicts between family members.
- If you inherit a home with an outstanding mortgage balance, you may be able to take over the monthly payments.
What happens to your mortgage when you die?
If you have an outstanding mortgage on your home when you die, the loan still must be repaid. In most cases, your mortgage debt is generally paid out of your estate or by the person who inherits the home after you die. Your heir can either continue making the mortgage payments or sell the home and repay the loan from the sale proceeds.
Many mortgages come with a due-on-sale clause — also called an acceleration clause — which means lenders can require the loan to be fully repaid when property ownership is transferred. However, lenders must allow a deceased homeowner’s family members to assume a mortgage on a property they inherit, according to federal law. This means if you leave your home to your child or another relative, they won’t be required to repay the loan all at once.
What if you have multiple heirs?
If you leave your home to multiple beneficiaries, they’ll all be responsible for either continuing to make mortgage payments or selling the property to pay off the loan balance. If one heir wants to keep the home, they can buy out the others’ shares.
What happens to a joint mortgage when someone dies?
If you have a joint mortgage with a co-borrower (such as your spouse), then they will assume the remaining debt as well as ownership of the property. Your spouse can then choose to keep the home and continue making payments as scheduled, or sell the home.
What happens to a reverse mortgage when someone dies?
When you die, your reverse mortgage balance becomes due and payable, unless you have a surviving co-borrower or eligible nonborrowing spouse.
If you don’t have a co-borrower or eligible spouse, your heirs must repay the reverse mortgage if they want to keep the home. Once your heirs receive a “due and payable” notice from the lender, they have 30 days to buy, sell or turn the property over to the lender, though the timeline can be extended up to six months.
To sell the home, the heirs must pay back the loan balance, or at least 95% of the home’s appraised value if the mortgage balance exceeds the home’s value. If the loan isn’t repaid, the lender will likely initiate the foreclosure process.
Learn more about how to get out of a reverse mortgage.
How does inheriting a property with a mortgage work?
If you inherit a home with a mortgage, there are two main options:
- Take over the payments
- Sell the property
If you want to keep the home, you’ll want to contact the lender to see what’s required. The lender will likely review your credit history and finances to ensure you can afford the monthly payments. In addition, you may need to provide the lender with the following information to prove you have an ownership interest in the property:
- Copy of the deceased person’s executed will
- Death certificate
- A letter from the executor or administrator of the estate
- The deed
Can I refinance an inherited property?
You may qualify to refinance an inherited property once your name is on the deed. Refinancing an inherited home could make sense if it allows you to secure a lower mortgage rate, better terms or lower payments. In the case of a cash-out refinance, it could provide access to funds you could use for repairs or upgrades.Learn more about your available mortgage refinance options.
Ready to compare refinance offers? Get Your Best Rates from Top Lenders Today4 tips to cover your mortgage after your death
- Get your estate plan in order. Having an estate plan, like a will or trust, in place before you die can make the process smoother for your heirs and potentially help minimize estate taxes.
- Consider mortgage protection insurance. Think of this like life insurance for your mortgage loan. Mortgage protection insurance pays off your remaining mortgage balance if you become disabled or die.
- Look into life insurance. Life insurance can provide your heirs with a lump sum they can use to pay off the mortgage. Life insurance is paid out directly to your beneficiaries and can also be used to cover expenses other than mortgage debt, including medical bills and funeral costs.
- Communicate with your heirs. Be transparent about your wishes and help your heirs understand the steps they’ll need to take after your death. Clear communication can help minimize confusion and conflict between family members.
Frequently asked questions
You may not need to requalify for an inherited mortgage as an heir. This is because if you already have the title, the lender isn’t required to determine your “ability to repay” before allowing you to take over the loan. However, it’s a good idea to check with your lender to confirm their specific requirements.
A mortgage is generally not allowed to stay in a deceased person’s name. When the homeowner dies, it’s crucial to inform the lender immediately.
No, a mortgage balance generally can’t be forgiven after death. When someone passes away, their debts are paid from their estate. If there’s not enough money in the estate to cover what’s owed, the debts may go unpaid.