The loss of a loved one is an emotional time and juggling the assets they have can be more difficult. Although inheriting a home could be beneficial but when a mortgage is involved, the process becomes more complicated. Understanding mortgage assumptions and multiple heirs is a challenge. To help you comprehend this process we’ve put together this handy guide to what happens to mortgages after the death of a person.

The management of your assets for a beloved one

In the beginning, it is important to know the terminology that you’ll see when dealing with the family member’s assets. When someone dies, everything they left to their estate. This could include savings, jewellery, properties and even vehicles.

The person who is in charge of the estate is called an administrator or executor. The executor is identified within the Will and is granted the Grant of Probate. If there’s no Will the next of kin could petition the court for appointment as administrators. Administrators are issued Letters of Administration.

The process of settling the estate may be complicated particularly if the deceased has accrued debt over their life. If the person who passed away has outstanding debts on loans, credit cards or household bills the payment will usually come through the trust. The same is true of mortgages. However, various circumstances can affect the way a mortgage is paid.

What happens to your mortgage if you pass away?

When we die, our debts remain. For mortgages, the executor or estate administrator is accountable for repaying the loan. This has to be completed before the savings are distributed to beneficiaries or family members.

We know that this is an overwhelming task as there are a myriad of aspects to be considered. The kind of Mortgage Protection Insurance, the much is owed in life insurance policies, and wills all play a part in the way that the mortgage is paid.

If you have an interest-only loan, the payment plan that is agreed upon between the lender and the borrower must be implemented by the estate on the death of the borrower. But, if the loan is based on assets like shares and stocks that require time to mature, the asset could be sold to pay the remaining balance. It is also possible when the relatives who are left behind cannot pay the mortgage.

How does a joint mortgage if the borrower dies?

What happens when a joint Mortgage Life Insurance will depend on whether the borrower who died has an estate plan or a Will or not, and also if the property was acquired in a joint tenancy, or as tenants-in-common.

Joint Tenancy

If a joint tenancy is in place in which the remaining partner is the one to inherit the property automatically. The balance of the mortgage may be covered under an insurance policy for life but in the event that it is not, the remaining partner will be responsible for any remaining balance. If you think this might be difficult, contact your lender as quickly as you can. The lender might be able help locate a better option like extending the term of your mortgage or changing to an interest-only mortgage.

Are you a Mortgage Broker Wolverhampton client, we can be reached on 0121 758 827* for further information.

Tenants-in-common

If you own a home in common with tenants, your rights to ownership will be determined by who the deceased partner left their share of the house through their will. If there is no Will and the share of the deceased’s property is included in the estate, and is divided according to the rules of intestacy (External).

What happens to the Buy to Let mortgage when the landlord dies?

If the property is a rental home with the benefit of a Buy to Let mortgage, the property will usually be passed to the spouse/partner who is surviving or to the beneficiaries of the will. In the event of a change, the new landlord(s) are required to be evaluated for the fresh Buy to Let mortgage and get new tenancy agreements drawn by their name. This can be a difficult procedure and we’d suggest to seek the advice of an expert tax advisor or mortgage professional to ensure that you are aware of the circumstances and the responsibilities.

What’s the mortgage assumption?

The assumption of a mortgage following the death of the borrower means you’re taking over the responsibilities of a mortgage that’s already in place. The benefit of taking on one is that the new holder may benefit from the existing terms of the mortgage – for instance, to obtain an interest rate that is lower or an exemption from the due-on-sale clause and without having to apply for an entirely new mortgage.

It’s crucial to know that you don’t have to accept the obligation of a mortgage. When you inherit property, you are the owner. But the mortgage remains in the name of the borrower until you officially take over the mortgage. You are still able to make payment towards the loan however, your legal responsibility to repay the loan rests in the estate.

Keep in mind that if there is no person who takes over this mortgage or the trust is not able to pay back the debt, the lender has the legal right to take the property off the market to pay off the debt.

Can I assume the mortgage of my parents upon their demise?

In fact, taking over your parent’s mortgage when they die is possible, but not a guarantee. The home your parents lived in could have sentimental worth to you, but it’s crucial to think about the impact this could have on your financial situation before making decision.

A important aspects to think about is the method you’ll use to take care of any outstanding debts due on the property of your parents. If you’re not able to take on this financial obligation as a lender, they have the option to make an order for the selling of the property to get the remaining balance of any mortgage. But don’t let this put you off. Most the lenders will be aware that settling an estate may take time.

If you’ve been given the property then you’ll need follow the normal mortgage procedure. This will involve assessing your capacity to make the mortgage payments. If you are able to afford the monthly payments, you may then apply for a mortgage. If you are rejected it could be necessary to sell the house or other property, unless you have savings or insurance that could be used to pay down the amount of debt that is outstanding and allow a Mortgage Protection for Families to be placed that is in your name feasible.

What happens if there is no one to take the mortgage’s responsibility?

This could happen due to several reasons. First If the sole mortgage holder died without a Will it can be very complex. But there are legal guidelines in place, also known as the intestacy rules, that determine who is the beneficiary of the estate.

In this case your next-of-kin may request the Letters of Administration and once appointed as administrator, they are able to value the assets, settle any debts, and distribute the estate according to Intestacy laws. Making an estate plan without a Will typically takes longer. Therefore, the earlier you file for Letters of Administration, the quicker you can distribute the estate to your heirs.

If the property is not in good standing, then you might not decide to take on the mortgage. It is important to remember that you do not have to accept all the inheritance you get and you may choose to ‘disclaim’ the property instead. Be aware that you must declare the property immediately in order to not accept the inheritance only to alter your decision in the future. If you do accept the property, you’ll be accountable for the property as well as any debt that comes with it.

Finally, if no relatives left to take over the property, the estate of the deceased passes into the Crown. HM Treasury is then responsible to manage the estate.

What happens to any other debts when you die?

As with mortgages, existing obligations don’t go away after the death of a person. They’re paid from the estate prior to any assets or savings are given to relatives and the beneficiaries. If your outstanding balances remain large and cannot be paid by savings or other assets or other assets, then the property is typically transferred to repay the debt.