What Happens to a Mortgage If I Die?

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One of the issues that all homeowners have to deal with is what happens to their home and the mortgage attached to it if they die. The mortgage is generally the largest debt that most people accumulate in their lifetimes. When you pass away, this debt does not simply disappear. Rather, the administrator of your estate, your beneficiaries and the lender have to make sure it's paid off, one way or another.

Family Considerations

When you die, your debt will not pass on to the members of your family or your beneficiaries, unless they are joint owners of the property. For example, if your spouse co-owns the property, she will still be responsible for the mortgage balance. Anyone who cosigns the loan will be responsible for it in full. If the house and the mortgage are only in your name, your family will not inherit responsible for the debt.

Lender May Foreclosure

Unless your family keeps up with the mortgage payments, the lender could foreclose. The lender still has the loan, and it is secured against the property. If the loan is not repaid, the lender has the right to foreclose on the property and sell it to get its investment money back. Beneficiaries that cannot make the mortgage payment but wish to keep the family home have the option of refinancing and taking out a new mortgage in their own names.

Mortgage Insurance

Some homeowners purchase mortgage insurance to protect their families in the event of their death. With mortgage insurance, the insurance company pays back the mortgage lender directly when you die. Most policies operate on a sliding scale basis, so that the insurance benefit you receive decreases as you pay down the mortgage. Some forms of mortgage insurance also pay out if you are diagnosed with a critical illness, which allows you to pay off the mortgage before your death.

Estate Proceeds

When a person dies, his debts are paid out of the assets he owns. The total of these assets is known as the deceased's estate. An administrator uses money from the deceased's bank accounts and life insurance proceeds to repay the debt. If necessary, the administrator sells the deceased person's assets to retire the mortgage debt.

Probate Sale

Another option to consider is selling the house. If the cash and assets of the estate is insufficient to pay off the mortgage, the administrator can sell the house. For estates not passing through probate, the deceased's family can sell the property and use the proceeds to pay off the outstanding mortgage balance. Money left over after paying off the mortgage goes to the deceased's beneficiaries.

Helping Hand For Heirs

If you do not have a family or any other beneficiaries, there is little incentive to make preparations to retire your mortgage debt when you die. If you have a family that may wish to live in the house when you are gone, some careful planning can help. By purchasing a mortgage insurance product or a life insurance policy, you can effectively plan for the retirement of the mortgage debt when you are unable to continue making payments yourself.