Nothing in life is certain, except death and taxes, says the adage. The same could be said about mortgages. Did you know that “mortgage” is taken from a French term meaning “death pledge?” A recent article titled “What happens to your mortgage when you die?” from bankrate.com explains the options for homeowners who wonder what might happen to their home, mortgage, and loved ones after they die.
When a homeowner dies, their mortgage lives on. The mortgage lender still needs to be repaid, or the lender could foreclose on the home when payments stop, regardless of the reason. The same is true if there are outstanding home equity loans or lines of credit attached to the property.
If there is a co-borrower or co-signer, the other person must continue making payments on the mortgage. If there is no co-signer, the estate’s executor makes mortgage payments from estate assets.
When a home is left through a will, it’s up to the heir to decide what to do with the house and mortgage. If the lender and the mortgage terms allow it, the heir can assume the mortgage and make payments. The heir might also arrange for the property to be sold.
After conferring with the family’s estate planning attorney, a sole heir should reach out to the mortgage company and discuss their options. To assume the mortgage, the heir must transfer it to the heir. If the property is sold, proceeds from the sale are used to pay off the loan.
In many cases, Heirs do not need to requalify for the mortgage on a loan they inherited. This can be a good opportunity for someone with bad credit to repair that credit if they can stay current on the mortgage. If the heir wants to change the mortgage terms, they will need to qualify for a new loan and meet all of the lending institution’s eligibility requirements.
Proof that a person is the rightful inheritor of the property or executor of the estate may be required. The mortgage lender will typically have a process to specify what documents are needed. If the lender is not cooperative or balks at any requests, the estate planning attorney will help.
If you own a home, it is essential to plan for the future, including making decisions about what you want to happen to your home if you are too ill to manage your affairs or for when you die. You’ll need to document your wishes,
Reference: Bankrate.com (July 9, 2021) “What happens to your mortgage when you die?”