What Happens to a Mortgage When a Borrower Dies?

Estate planning can keep a family from enduring an undue financial burden when a wage-earner passes away. Mortgage loans aren’t forgiven after a holder’s death; because the loan is secured, the home can be sold to pay the loan. A person’s estate plan must outline how the home and mortgage’s disposition will be handled.

Mortgages

A mortgage is a loan paid in installments and secured by the home’s value. When a person dies before the mortgage is paid off, the loan will be handled by a co-borrower or the decedent’s estate. Where there’s no co-signer, the borrower’s will dictates how the loan will be handled.

Co-Borrowers

If someone dies before a mortgage balance is paid, the other borrower is still liable for the remaining payments. A co-borrower is jointly responsible for the loan debt, and a lender can sue either person for the remaining debt. When a mortgage is signed by two people, both promise to pay the full amount if the other person is unable to do so. If either person passes away, the lender collects payment from the other signer rather than the decedent’s estate.

Wills

If a borrower doesn’t jointly own a home and they have a will when they die, the home passes to named beneficiaries. If the person’s will specifies that the home goes to a certain person subject to the loan, the beneficiary must pay the mortgage. Otherwise, the mortgage is paid by the estate and the home’s title is transferred to the beneficiary. If there’s not enough money to pay the mortgage, the beneficiary can pay the loan or sell the home and use the proceeds to pay the balance. When someone dies intestate (without a will), the estate follows the state’s succession laws.

Insurance

Mortgage life policies are designed to pay a home loan if an insured person dies. These policies are designed to pay the balance before the loan term expires. Borrowers can also consider buying a term life policy that matches the mortgage’s term; beneficiaries can use the proceeds of that policy to pay the loan balance. Borrowers can see this page about Dustin Dimisa for more mortgage details.