Home ownership is one of the great cornerstones of the American dream. But what happens to the mortgage you have on your home after you pass away? Understanding the process of how assumption of mortgage after death works, and planning for it now, can protect you and your loved ones in the future.
Learn the ins and outs of what happens to a mortgage after you die, how mortgages differ from other types of debt, and more here, as we cover everything you need to know about mortgages and estate planning.
Who’s Responsible For A Mortgage After The Borrower Dies?
Traditionally, any outstanding debt you owe would be paid off out of your estate after you pass away. However, the process is slightly different when it comes to mortgage debt. Unless you have a co-borrower or a co-signer on your mortgage loan, there’s no legal requirement for any of your heirs to take on the responsibility of paying off a mortgage in your name.
That said, if you leave a property to someone and they wish to keep it, they would need to take over the mortgage. There are laws set up that offer guidance and provisions for how this should happen. And they could always simply just continue making payments until they sell the home, if that’s the route they want to take.
If you don’t use your Estate Plan to detail how your home should be handled, and nobody takes over the mortgage payments, the mortgage lender will eventually foreclose on the property. Ultimately, what happens to your mortgage after you pass away greatly depends on state laws and what you’ve set up through your Estate Plan while you’re still alive.
If there is a co-borrower on the mortgage: The surviving co-borrower on a joint mortgage would be responsible to repay the debt. Typically, co-borrowers equally share any burden of debt for a mortgage.
If there is a co-signer on the mortgage: Similarly to what happens when there’s a co-borrower on a mortgage, co-signers would be responsible for taking over the mortgage in the event the primary borrower passes away.
If there is a designated Beneficiary in the borrower’s Will: If you leave your home to a designated Beneficiary in your Will, keep in mind that the inheritor is only entitled to the title of the home, not the mortgage. Inheritors will generally need to complete the assumption process in order to pay off a mortgage if they plan to keep the home.
If there is NOT a designated Beneficiary in the borrower’s Will: If you do not designate a Beneficiary in your Will, and no other provisions are made about who should get the home, and if nobody continues to pay the mortgage, the lender will just sell the home in effort to recoup their loan. It’s important to remember that lenders will not initiate foreclosure without giving inheritors reasonable time to get their affairs in order and assume the loan, if that’s what they choose to do.
Assumption of Mortgage After Death of a Spouse
If you and your spouse have a mortgage on a property that’s owned jointly, as we mentioned earlier, the responsibility of making payments on the mortgage will just fall to the survivor after the first spouse passes away. In this case, the surviving spouse would become the sole owner.
If you are the only one on the mortgage but are married, even if you don’t have a Will, it is likely that through intestacy laws, your spouse will still inherit the house. If your estate cannot pay off the mortgage in its entirety, your spouse will become responsible for the remaining mortgage if he or she wants to keep the property.
How Does Mortgage Debt Differ From Other Debt After Death?
As we briefly touched on, mortgage debt is handled very differently than paying off other types of debt after death is. After you pass away, assets in your estate will be used to pay off the majority of outstanding debts (think: credit card debt or healthcare expenses). And, there are even some exceptions to this (think: Life Insurance policies or retirement plans that have designated Beneficiaries directly named).
Credit Card Debt: Most often paid for out of your estate. Surviving spouses who are joint borrowers would be responsible; children typically would not inherit credit card debt. Community Property states may have different rules, so you should check your local state laws.
Student Loans: Federal student loans are forgiven when the borrower passes away; a certified copy of the Death Certificate is required. Private student loans would be dependent on the individual loan servicer; check with them regarding a forgiveness policy.
Mortgage: Federal law requires lenders to allow family members to assume a mortgage if they inherit a property. However, there is no requirement that an inheritor must keep the mortgage. They can pay off the debt, refinance or sell the property. Similarly, joint borrowers (I.E., spouses) can either assume the loan, refinance it or pay it off entirely.
How to Take Over Mortgage on an Inherited House or Property
If you recently inherited a home or property but you can’t afford the current mortgage payment, depending on the terms of the original mortgage loan, you likely have options. If you're a Beneficiary of a home and you want to try and keep it, there are several ways you can move forward.
Use other assets in the estate to pay off the existing mortgage
Take over the loan (assume it) and take responsibility for making future mortgage payments with the house deed and the loan in your name
Continue making payment on the existing loan - the Consumer Financial Protection Bureau offers lenders the flexibility to name an inheritor as the borrower on a loan without going through the hassle of a traditional mortgage underwriting and approval process
Special Note Regarding Reverse Mortgages: Note that if you inherit a property that has what’s known as a Reverse Mortgage, things would play out slightly differently. With a Reverse Mortgage, the borrower wouldn’t be making payments on the principal loan amount until they either moved out or sold the property. If you wanted to keep a home that has a Reverse Mortgage loan, you would need to pay off the loan. Alternatively, you could sell the home, pay off the loan and keep anything left over. And as a final option, you could just walk away and let the property go into foreclosure.
How Can I Prepare for Assumption of Mortgage After Death?
There really is only one way to confidently prepare for what should happen to your home and mortgage after you pass away. That is through a comprehensive and complete Estate Plan that includes your wishes for what you want to have happen to the property when you’re no longer here to pay the mortgage.
Your Estate Plan is the only effective way you can really control a property and mortgage after your death. It can ensure you protect your family, your assets and your legacy.
Estate planning doesn’t have to be difficult. In fact, it can actually offer great peace of mind, knowing that you’ve prepared for the future and protected your loved ones. Let your Estate Plan offer every ounce of protection it can, including how an assumption of mortgage after death will be handled.