What happens to a mortgage if I die?

Written by luke arthur
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What happens to a mortgage if I die?
When you die, your mortgage will remain. (house image by Michael Shake from Fotolia.com)

One of the issues that all homeowners have to deal with is what would happen to their mortgage if they died. The mortgage is generally the largest debt that most people accumulate in their lifetimes. When you pass away, this debt will not simply disappear and will have to be handled in one way or another.

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Family Considerations

When you die, your debt will not pass on to the members of your family or your beneficiaries, unless they are joint owners of the property. If you were a joint owner of a piece of property with a spouse, your spouse would still be responsible for the mortgage balance. Anyone who signs the loan will be responsible for it in full if a co-signer dies. If you owned the house in only your name, your family will not be responsible for the debt.

Foreclosure

If your family does not have any money to pay the mortgage, the lender could foreclose on the property. The lender still has the loan and it is guaranteed by the property itself. If the loan is not repaid, the lender has to foreclose on the property and sell it to get its investment money back. Your family could potentially refinance the mortgage and reaffirm the debt in their own names if they wanted to keep the house.

Mortgage Insurance

Some homeowners purchase mortgage insurance to protect their families in the event of their death. With mortgage insurance, the insurance company will pay back the mortgage lender directly when you die. The benefit of mortgage insurance decreases as the mortgage debt decreases with payments. Some forms of mortgage insurance will also pay out if you are diagnosed with a critical illness. This will allow you to pay off the mortgage before your death.

Estate Proceeds

When a person dies, his debts will be paid out of his estate if he has sufficient assets. Money will be taken from savings accounts and other accounts to repay the debt. Life insurance proceeds are often used for this purpose as well. If necessary, the assets of the deceased person can also be sold to retire the mortgage debt. If the value of the estate is insufficient, the house will usually be foreclosed upon.

Sale

Another option to consider is selling the house. Once the family members sell the house, they can use the proceeds to pay off the outstanding mortgage balance. If there is any money left over after paying off the mortgage, it would go to the deceased's beneficiaries.

Considerations

If you do not have a family or any other beneficiaries, there is not much incentive to make preparations to retire your mortgage debt when you die. If you have a family that will still want to live in the house when you are gone, some careful planning can make this possible. By purchasing a mortgage insurance product or a life insurance policy, you can effectively plan for the retirement of the mortgage debt when you are unable to continue making payments.

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