Mortgages And Death
Are you prepared for the unexpected? Learn what happens to your mortgage if you or your partner pass away and how to secure your loved ones' future.
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When you’ve just bought a new home and are looking forward to settling in, the chances are that death is the last thing you want to think about. But for peace of mind for you and your loved ones it’s important to have an idea of what would happen to your mortgage if you and anyone else on the deed were to die before paying it off in full.
In this guide we’ll explore the different scenarios that can occur when one or more borrowers dies sooner than expected, and how the resulting situation can be managed — including what happens to the remaining debt, who is responsible for the repayments and why working with a specialist broker is essential for anyone directly implicated by the death of a mortgage borrower.
Click on the links below for more on each topic.
What happens to a mortgage when someone dies?
When a mortgage holder dies, the debt doesn’t die with them. It must be paid by the executor out of the estate before any savings are passed on to the family or other named beneficiaries in the will.
There are several factors that play a part in exactly what happens to the mortgage and who is responsible, including:
- The type of mortgage
- How much is owed — both on the deceased borrower’s mortgage and on other debts
- Whether there are any surviving borrowers
- How they owned the property
- The relationship of any surviving borrowers to the deceased
- Whether they had a will (and what was in it)
- Whether there is a life insurance policy in place
If it is determined during probate that the mortgage cannot be paid by surviving relatives or if none are named can be found, the lender has the right to recoup the debt by selling the property.
What about interest-only mortgages?
The principle – and process – for what happens when a mortgage holder passes away is basically the same for any type of mortgage, in that the debt will ultimately have to be settled by some other party once probate has been concluded and the ownership rights transferred.
With an interest-only mortgage, the original amount borrowed remains the same throughout the term. The borrower would have agreed a repayment strategy with the lender, and in most cases this will be enacted by their estate if they die sooner than expected.
However, in some interest-only arrangements the repayment vehicle relies on the performance of assets such as stocks and shares that are expected to grow in value over time. In the event of an untimely death these assets may not have had time to mature, and in this case the property would usually have to be sold to repay the balance.
Buy to let
If you own a rental property with a mortgage and you die before the end of the term, management of that property and of any tenants in place at the time of your death will initially fall to the executor of your will.
Responsibility as landlord will then pass on to anyone named in your will as a beneficiary, and if they choose to keep the property they’ll need to be assessed for a buy-to-let mortgage by the lender and have new tenancy agreements drawn up in their name.
There could be tax implications for anyone inheriting buy-to-let property, so it’s important to speak to a qualified tax advisor as well as a mortgage broker in the investment property sector for the right advice.
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What happens to mortgage repayments during probate?
Throughout the probate process, any debts are usually covered by the estate of the deceased borrower. This can include mortgage repayments but most lenders will agree to put the account on hold so there is no need for beneficiaries to make repayments during this period. However, depending on the terms of the mortgage, interest may continue to accrue even if payments are frozen.
If you’ve inherited a property and any associated debts it’s important to seek professional advice during the probate period, as it gives you an opportunity to explore the options, get your finances in order and decide on your next steps, such as whether to take on the mortgage or sell.
What if you can’t afford the repayments?
If you inherit a property but cannot cover the cost of the mortgage repayments yourself, the good news is that you are not legally obliged to do so, but this would of course mean losing your rights to the property.
If your preference is to keep a mortgaged property that you inherit, there should still be options open to you, many of which may allow you to keep the property on more affordable terms.
These could include:
- Asking the lender to grant you a payment holiday while you raise more funds.
- Increasing the term of the mortgage: this could reduce the monthly payments to an amount you can manage.
- Changing the mortgage from a repayment arrangement to interest only
- Remortgaging to find a lender with a lower interest rate to reduce payments
- Selling and downsizing to a more affordable property
- Paying off part of the mortgage with cash from insurance / employer death in service benefit
Whatever route you might consider, it is crucial that you seek professional advice in this situation, as there is no one-size-fits-all answer. The specialist brokers we work with have helped countless clients in a similar position before and are ideally placed to help you find the best way forward.
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How can a broker help with transferring a mortgage after death?
There are different ways you might be able to approach this and a broker should be able to steer you towards the best option in your circumstances.
For example, in some cases it may be necessary — or it could make financial sense — to remortgage before putting a mortgage into someone else’s name. In other cases, the existing lender may agree to a transfer of equity, where a new borrower is simply named in place of the deceased, without changing the terms.
Transferring a mortgage also has significant tax implications, so it’s important to get advice from an independent financial advisor who can help you navigate this often complex landscape.
Do you need to write a will if you have a mortgage?
Writing a will and including instructions for what should happen to your property and any remaining mortgage debt is strongly recommended as it can help to resolve any questions about who should inherit these important assets and liabilities in the event of your death.
This is particularly important if the mortgage is in a single name (sole tenancy) but you live with a partner, or if you and your partner own the property as tenants-in-common, because in these scenarios, the property would not otherwise pass automatically to the surviving partner.
What happens if one person dies on a joint mortgage?
For joint mortgages this depends to a large extent on the way the property is owned, i.e. a joint tenancy or tenants-in-common — as well as whether the deceased borrower had written a will.
- Joint tenancy: The surviving partner will automatically inherit any remaining mortgage debt along with the property. The outstanding balance may be covered by a life insurance payout but if not, the surviving partner will usually have to prove to the lender that they can afford the ongoing repayments as a sole borrower
- Tenants-in-common: If two or more borrowers own a property as ‘tenants in common’ and one borrower dies sooner than expected, ownership rights and responsibility for the mortgage will depend on whether they left a will and on their wishes for what happens to that share in the event of their death
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When should you notify the mortgage provider?
You should tell the lender as soon as possible after anyone named on the mortgage paperwork dies. Lenders are usually very understanding in this situation and will usually agree to a payment holiday while the estate is being settled.
While a major life event for you, this is a common occurrence for lenders and there are certain standard procedures that you will need to follow, such as sending them a copy of the death certificate once you’re in a position to do so.
What happens to a reverse mortgage after death?
Usually called a ‘lifetime mortgage’ in the UK, this type of mortgage is an arrangement that allows homeowners aged 55 and older to release some of the equity in their existing property and use it as a security for further borrowing.
After they die, the debt is paid off by their estate, usually but not always by selling off the property. Any equity that remains is then disbursed to the beneficiaries who are named in their will.
Speak to an expert on mortgages after death in the UK
While the issues of inheritance and mortgage transfer may feel uniquely challenging at the best of times, an experienced broker will have seen countless similar situations play out before and will be ideally placed to help you find a solution that works out in your favour. Make an enquiry today or call us on 0808 189 2301, and we’ll put you in touch with a broker who specialises in mortgage arrangements following a death.
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If you inherit your parents’ mortgaged property you may be able to take on the repayments, as long as you are able to find a suitable lender and fit their eligibility criteria. An experienced broker should be able to help you find one with a good track record of helping people in your situation, so it’s important that you contact one as soon as possible after learning of your inheritance.
In the short term the answer is yes, but there are good reasons to have it removed and the new borrower’s name added as soon as you can. Most importantly, for as long as the mortgage is held in a deceased person’s name, the lender has the right to repossess the property, so we recommend letting them know about the situation as soon as you can.
Not being named on the mortgage deed or on the deeds to the property itself should not matter if you were married to the deceased co-owner (or if you were unmarried but named as a beneficiary in their will). You can still inherit the property.
In either case, if you are not named on the deeds you would need to register ownership in your name with the Land Registry as part of the process of taking on ownership of the property and any mortgage arrangements. Your name would also be added to the mortgage paperwork — whether the lender agrees to add you to the existing account or you remortgage with another lender.
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