Who Pays My Home Equity Loan if I Die?

Taking out a home equity loan can be an effective way to tap into a large source of cash when you need it. Once you take out this loan, you must make the loan payments or you risk losing your home. When you die, what happens to the loan is determined by several factors, such as the type of insurance you have and what your family wants.

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Taking Over the Loan

If you have a family that is still living in the house that has the home equity loan on it, they can elect to take over the loan. In this case, the surviving family members will have to clear this with the lending institution. The lender may simply allow the family members to start making payments on the loan. In some cases, the lender may require the family members to refinance the loan and pay off the existing one.

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Credit Insurance

When you take a home equity loan, you may be given the opportunity to purchase credit insurance. This is a type of insurance that is sold in conjunction with the mortgage which guaranteed to pay for your debt if you pass away. If you purchased this kind of insurance, the home equity loan will be paid off by the insurance company when you die. This will remove the debt so that your beneficiaries can enjoy the property debt-free.

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Paying From the Estate

When you pass away, and executor or administrator will be put in charge of settling your estate. Part of this process involves paying off any outstanding debts. Before any of the assets from the estate can be distributed to the beneficiaries, all of the outstanding debts must be paid off. When you have a home equity loan, the executor will first try to pay off the debt with any assets that remain in the estate.

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Selling the Home

Another option that your heirs can consider is selling a home to pay off all of the debts. If you do not have any family members to inherit the home, the lender will simply foreclose on the home and sell it. If you do have family members, they can elect to sell the house and use the money to pay off the home equity loan and any other debts. If they do not necessarily care about keeping the house, this option can help them eliminate some debt and get a fresh start.

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