When someone dies, their debts don’t simply disappear. Instead, these debts are usually paid by the person’s estate before any assets are distributed to their beneficiaries.
When it comes to mortgages after death, the monthly mortgage payments still need to be made, and if you inherit the property, you will be responsible for making the mortgage repayments.
In the case of joint mortgages, ownership of the property and responsibility for mortgage repayments depend on whether it was held under ‘joint tenancy’ or ‘tenancy in common’.
In this article we will explain what happens to a mortgage when someone dies, what options there are and where to go for advice.
What happens to a mortgage when you die?
When a homeowner passes away, their debts, such as mortgage and credit card debts, are typically paid by their estate before any assets are distributed to beneficiaries.
This means that any assets such as cash, property and investments will first be used to repay debts.
In the case of a mortgage, how it is handled depends on how the property is owned (sole, joint etc).
If you inherit a property from someone then you will be responsible for repaying any outstanding mortgage.
What if you have a joint mortgage?
To deal with a joint mortgage after the death of your partner, it’s important to inform your lender and provide them with a death certificate.
You should reach out to your mortgage lender as soon as possible, as they will have specific procedures in place for these circumstances. They will guide you through the next steps and may require documentation such as the death certificate. Keep in mind that each lender may have their own policies regarding joint mortgages.
In terms of ownership, if you and your partner owned the property under ‘joint tenancy‘, you will inherit the property outright and any associated debts, including mortgage repayments, will become your responsibility. However, if you owned the property as ‘tenants in common‘, the share held by your deceased partner could be given to someone else or used to pay off outstanding debts.
It’s crucial to understand that even after the death of your partner, you’ll still need to continue making monthly mortgage repayments. If necessary, consult with the lender about potential options such as refinancing or remortgaging to reduce payments. In some cases where it becomes challenging to meet these payments on your own, selling the property might be considered a last resort.
Remember to seek professional advice from experts who can help navigate this difficult situation and provide guidance based on your specific circumstances.
Joint tenancy explained
Joint tenancy is a legal arrangement commonly used in property ownership, where two or more individuals jointly own a property. It is often chosen by spouses, partners, or family members who wish to own property together. In a joint tenancy, there are several key characteristics and implications that should be understood:
Equal Ownership: In a joint tenancy, all co-owners have an equal share of the property. This means that if there are two joint tenants, each owns a 50% share, and if there are three, each owns a one-third share, and so on.
Right of Survivorship: One of the defining features of joint tenancy is the right of survivorship. This means that if one of the joint tenants passes away, their share of the property automatically transfers to the surviving joint tenant(s). This process happens outside of probate, simplifying the transfer of ownership.
No Permission Needed: Each joint tenant has the right to use and occupy the entire property. This means that no tenant can exclude others or require permission to access any part of the property.
Unity of Time, Title, Interest, and Possession: To establish a joint tenancy, there must be unity of time (the co-owners acquire the property at the same time), unity of title (they acquire the property through the same deed), unity of interest (they have equal ownership shares), and unity of possession (they all have the right to use and possess the property).
Joint tenancy can be a suitable arrangement for those who want a seamless transfer of ownership in the event of one owner’s death and wish to avoid the complexities of probate. However, it’s important to note that entering into a joint tenancy should be a well-considered decision, as it can have significant implications for estate planning and property rights.
Tenants in Common explained
Tenants in common is another form of property ownership, but it differs from joint tenancy in several key ways. This arrangement is often chosen by individuals who want to co-own a property with others while maintaining distinct ownership shares. Here’s a closer look at tenants in common:
Individual Ownership Shares: In a tenants in common arrangement, each co-owner holds a distinct and specified ownership share in the property. These shares do not have to be equal, allowing for flexibility in property ownership.
No Right of Survivorship: Unlike joint tenancy, tenants in common do not have the right of survivorship. This means that when one co-owner passes away, their share of the property does not automatically transfer to the other owners. Instead, it becomes part of their estate and is distributed according to their will or local inheritance laws.
Permission for Access: While each tenant in common has the right to access and use the entire property, they may need the permission of the other co-owners to make changes to the property or sell their share. This arrangement respects individual ownership rights.
Flexibility in Ownership Arrangements: Tenants in common is often chosen when co-owners have different financial contributions or investment goals. For example, one owner may have a 60% share, while another has a 40% share, reflecting their respective investments in the property.
Tenants in common can be a suitable choice for co-owners who want to maintain individual ownership rights, allocate ownership shares based on their contributions, and have the freedom to transfer or bequeath their shares as they see fit. However, it’s essential to have a clear agreement in place to govern issues like property maintenance, sale of shares, and dispute resolution to ensure a harmonious co-ownership experience.
Who is liable for the mortgage payments?
The liability for mortgage payments upon the death of a homeowner depends on the type of property ownership and the terms of the mortgage.
In a joint tenancy, when one of the co-owners passes away, the surviving joint tenant(s) assume full responsibility for the mortgage payments.
This is one of the key features of joint tenancy known as the “right of survivorship.” The deceased owner’s share of the property automatically transfers to the surviving owner(s), and they become the sole owner(s) responsible for the mortgage.
In a tenants in common arrangement, the situation is different. When one of the co-owners passes away, their share of the property typically becomes part of their estate.
The responsibility for mortgage payments on their share may depend on the deceased owner’s will or estate plan. If the will specifies that the property should be sold to settle the mortgage or if there are sufficient assets in the estate to cover the mortgage payments, then the estate would be responsible for the payments.
It could be you!
If you are the beneficiary of a mortgaged property, then you will be responsible for making the monthly repayments, and ultimately fully repaying the debt.
In the short term this may been making regular payments, and clearing any arrears that may have accrued since the owner died.
Beyond this you will need to consider changing the mortgage, and ownership of the property, in to your own name. This will involve formally applying to the lender for a new mortgage.
Will an inherited property always have a mortgage?
No.
When a person passes away, their estate, comprising assets and liabilities, is managed and settled by an executor or administrator.
If the property was already mortgage free, then it will be passed on without a mortgage.
An executor is responsible for gathering assets, paying debts and taxes, and distributing assets to beneficiaries as outlined in the will. Where there are sufficient liquid assets, it may be possible to clear all or some of the debts before the estate assets are distributed.
The benefits of life insurance
The situation would be very different if there was a valid life insurance policy.
This would pay out a cash lump sum (called the sum assured) on death which can then be used to settle any debts. Meaning that the remaining family and beneficiaries do not have the worry about paying off a mortgage.
You will find more useful information in our article: “Does life insurance have to pay off debt?“
Where to go for advice
If you are due to inherit a house then it’s worth speaking with the executors to see if there is an outstanding mortgage. Then you need to establish if there’s any money in the estate that can pay this off for you. Whether this is possible will be affected by any instructions left in the deceased’s will.
If there will be a mortgage to deal with, then contact the lender as soon as possible. They will have set procedures in place to deal with this kind of thing, and you can then better understand the costs and your options.
Should you wish to keep the property then speak to an independent mortgage broker asap, and before you make any firm decisions. They will be able to research whether you are eligible for a new mortgage and then let you know the related costs.
Life insurance protection for your mortgage
Your mortgage is probably the biggest financial commitment you will ever make, so it’s important to make sure your family can afford to keep up the mortgage repayments if you die.
A life insurance policy can help make sure they are not left struggling to make ends meet and at risk of losing the family home.
