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What Happens to Debt When You Die: Who Will Pay For Your Mortgaged Home?

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Georgia Carter Updated: 29 July 2021
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If you’ve just bought your first home, you may be wondering what happens to debt when you die? Will your family be responsible for paying off your home loan or is there something you can do to ensure your loved ones are taken care of financially when you’re no longer around. Mortgages can be complex concepts to understand, and the confusion can fuel a sense of fear for our families.

Luckily, there are ways to keep your family safe from debt once you are no longer here. In this post, we reveal what happens to a mortgage when the lender dies and what you can do to ensure that your debts are paid for when you pass away.

Key facts

  • Your debts are passed down to either your family members, appointed beneficiaries, or the Guarantor.
  • Some various factors and scenarios will determine what happens to your debts and loans after you pass away.
  • Life insurance can protect your family from having to pay off your property mortgages and debts.
  • Mortgage insurance only pays off the amount of your mortgage, nothing more.

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What happens to your debt when you die?

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With a will

If you pass away, your debts are under the responsibility of the executor of the estate. However, if a legal document such as a will contains information concerning the property, estate, or mortgages and debts, then those mentioned within the will must be notified immediately. It’s important that at least a daily member or family lawyer be informed of the whereabouts of the will.

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Without a will

If you pass away without a will, it’s typically known as a ‘dying intestate.’ In this occurrence, the Supreme Court of the region is required to choose an appropriate executor. The deceased’s assets will then be allocated depending on the state laws.

Will your family be responsible for your home loan after you die?

The executor of the estate will be responsible for your home loan once you have passed unless your will states otherwise. More often than not, the estate or property will be sold off to pay the debt. If not, then the loan will pass to the family, and they will have to pay it off.

Scenarios that may impact your mortgage after your death

There is no straightforward explanation or scenario regarding mortgages of the diseased and how they must be managed. Various factors come into play that can impact what happens to your mortgage after you pass and who is required to pay it off. These variables include listed beneficiaries in your will, home loan partners, appointed Guarantors, and secured assets of another family member.

  • Named beneficiaries on your property
    If a beneficiary in your will is named the new owner of the property, they will also inherit the mortgage and every debt connected to it.
  • Joint loans
    If  you have shared loans with either a partner or family member and you pass away, the joint partner and owner will become the sole owner and is therefore responsible for the loans, mortgages, and debts.
  • You have a Guarantor on your mortgage.
    A Guarantor is someone appointed to guarantee your mortgage. This is usually a family member who can allow the mortgage owner to withdraw more money without taking on more interest. However, this also means that the Guarantor is responsible for paying off the home loan should you pass away and have not given the responsibility to someone else. If the Guarantor cannot pay the mortgage, they will be forced by the bank to sell the property.
  • A family member allowed you to secure the mortgage with their assets
    When you pass away and have secured your mortgage with a family member’s assets, that appointed family member will be responsible for paying off the mortgage. If they are unable to do so, they will have to sell the property.

Can life insurance cover your mortgage after you die?

Yes, typically you may be able to use a life insurance policy to pay off your home loans after you pass away. Your appointed beneficiary will receive a lump sum after your death. Once they’ve received your benefits, they can choose to pay off your debts and mortgages.

How much life cover do you need to apply for to pay off your mortgage after you die?

The mortgage life insurance rate depends entirely on you, the rate of your mortgage, your monthly and annual salary, and your chosen beneficiary. Generally speaking, the average cost of the mortgage life insurance policy you purchase should be enough to pay off your debts after you pass away. You may also want to apply for additional cover to ensure all of your final obligations are taken care of.

What about Lenders Mortgage Insurance?

Lenders Mortgage Insurance policy is generally not intended to pay off your mortgage after you pass away. This type of cover is automatically applied if you take out a loan of more than 80% of the property’s overall value. If you are unable to pay your mortgage while , the insurance will ensure that the lender is paid back the correct rate.

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Finding the right life cover to pay your home loan

Numerous life insurance companies provide customers with a wide range of policy that cater to specific requirements. But with so many out there, searching for the best possible policy can be overwhelming. There are a wide variety of policies available which cater to varying budgets. It’s therefore recommended to review and compare several policies and companies before you make a decision.

What happens if your estate can’t pay off your mortgage

Suppose your beneficiaries or family members have to sell the estate or property but are still unable to pay off the mortgage. In that case, the responsibility will fall onto the beneficiaries or family members. They may be asked to pay off the debt using their assets. However, this is not the only solution. What usually occurs is that if the estate cannot pay off the load, the mortgage is forgiven and erased. 

Frequently asked questions and answers

  • What insurance pays off my mortgage if you die?

    A life insurance policy can typically pay off your mortgage if you pass away. Depending on your level of coverage, after you pass, your family or beneficiaries will receive a lump sum payout, which can be used to pay off your debts and mortgages. In order to protect your family, it’s recommended that you take out cover that will ensure the paying off of your debts after you pass.
  • Do you need life insurance with a mortgage?

    You are not required to take out life insurance cover if you apply for or have a mortgage. If you do not have life insurance, your debts fall under the responsibility of your beneficiaries, family members, or an appointed Guarantor. Those who inherit the property and mortgage will have to find a way to pay off the debts and often resort to selling the property itself to fulfil the payment requirements.
  • What is the difference between life insurance and mortgage insurance?

    Life insurance generally pays out a lump sum to the beneficiaries. The beneficiaries are then able to choose whether they want to use the money for personal expenses or utilize it to pay off your debts. Mortgage insurance covers only the amount of the mortgage and ends once the full amount has been paid off. In conclusion, the difference in life insurance isn’t specifically to pay off your mortgage, whereas mortgage insurance is. You can purchase life insurance to cover home mortgages.
  • How to make sure your home loan is paid off after you die?

    To ensure your home loan is paid off after you pass away and protect your family from bearing the burden of your mortgages, loans, and debts, you may want to consider buying life insurance cover. It’s recommended that you compare and review various companies, policies, and prices to choose the level of coverage that best suits you and your family. It’s ideal to purchase the cover that will pay off your debts and amount to the same rates you would receive on a monthly basis.
  • Is mortgage life insurance expensive?

    The rate and costs of life insurance to pay your home loans depend on a variety of factors. If you have taken out a hefty loan for your property, your life insurance or mortgage insurance will most likely be expensive as it will be used to pay off your debts. Alternatively, if your debts are not too expensive, you won’t be required to take out a large amount of coverage to pay these off after you pass.

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