Who's responsible for a mortgage after the borrower dies?

When a homeowner dies, the inheritance of a home is typically decided by a will or probate proceedings. But what happens when the property has a mortgage on it? Will your next of kin be responsible for your mortgage debt? What will happen to your surviving family members who still live in the home?

Let’s review what happens to your mortgage when you die and how to plan ahead to avoid mortgage issues for your heirs. We’ll also explore what you need to know if you’ve inherited a home after a loved one has died.

What happens to your mortgage debt when you die?

Your debts are typically paid from your estate after you die. Before any assets can pass to your heirs, the executor of your estate will use your assets to pay off your creditors.

However, with mortgage debt, the process is different.

Unless someone is a co-signer on the loan or a co-borrower, no one is legally obligated to continue paying off yourmortgage. But if someone inherits your home and decides to keep it and take over the mortgage, there are laws that allow it. Most commonly, surviving family members inherit the property and maintain the mortgage payments while they arrange to sell the home.

If no one takes over the mortgage after your death, your mortgage servicer will begin the process of foreclosing on the home.

Inheriting a house with a mortgage

Typically, when a mortgaged property transfers ownership, a due-on-sale clause – or alienation clause – is activated, and the remaining mortgage balance must be paid immediately. However, there are laws that allow heirs to inherit the title of a home (making them the legal owner of the property) without triggering the due-on-sale clause.

So, if you’ve inherited the home of a loved one, you can assume their mortgage and continue making monthly payments, picking up right where they left off.

Heirs should also be able to continue making payments to keep the mortgage current even if they haven’t legallyassumed the property’s title.

The exception in this situation is when the mortgage has a co-signer. Co-signers are solely responsible for the mortgage regardless of whether they have any right to ownership over the property.

How to get information on the mortgage

To take over the mortgage of an inherited house, you’ll need to talk to the loan servicer first and let them know you’ve inherited the property. You’ll likely need to provide proof of death and documents that prove you’re the rightful heir to the home.

The servicer should provide information about how to continue making payments and your options for assuming the loan.

I just inherited a house, so what should I do?

Once you’re in contact with the mortgage servicer, you’ll need to decide what you want to do with the house. If there are multiple heirs or you aren’t the executor of the will, this can get complicated, especially if everyone involved can’t agree on what to do with the home.

We’ll talk about what to do when the situation is fairly straightforward, such as an adult child inheriting a deceased parent’s house or a surviving spouse taking over a loan they weren’t originally on. If your situation is more complex or you anticipate conflict among the heirs, speaking with a lawyer may be a good idea.

Can I sell the inherited house?

One option is to sell the home to pay off the mortgage and distribute any leftover funds from the sale to the heirs as dictated by the will or the laws of the state.

If you want to keep the home, work with the servicer to get the mortgage transferred to you.

If you can’t afford the monthly mortgage payments under its existing loan terms, ask the servicer about loss mitigation options, such as loan modification, which may help you stay in the home and avoid foreclosure.

If there was a reverse mortgage on the property, the loan amount is due after the borrower’s death. If an heir wants to keep the property, they must repay the loan. Otherwise, they can sell the home or turn the deed over to the reverse mortgage servicer to satisfy the debt, resulting in a reverse mortgage foreclosure.

Can I refinance an inherited home?

Selling a home is an easy solution if there are multiple heirs and no one wants to hang on to the property. But what happens if you want to keep the home and your co-inheritors don’t?

One option is to buy out the other heirs. But of course, not everyone has money to buy out one or several heirs.

A refinance can help you free up funds to buy out the other heirs and assume ownership of the property. But be mindful that buying out the other heirs will make you solely responsible for all mortgage payments.

Preventing problems

The time after the death of a loved one can be distressing as a family grieves and tries to figure out what to do with everything the deceased left behind. Planning ahead can help avoid disputes and ensure dependents are provided for after a caretaker’s death.

Mortgage protection insurance in case of death

One way to avoid issues with your mortgage after death is to purchase mortgage protection insurance (MPI), also sometimes called mortgage life insurance. Unlike regular life insurance, which is paid to your beneficiaries, MPI is paid directly to your mortgage lender to cover some or all your remaining loan balance after your death.

Mortgage life insurance can help ensure that, after you die, your loved ones won’t be burdened by outstanding mortgage payments. However, there are a few drawbacks to consider. For starters, many insurers require enrollment in a mortgage protection insurance plan within a few years of closing on a home. For older homeowners who have lived in their homes for many years, it may be challenging to obtain a policy. And the monthly premiums are typically expensive. Depending on their circumstances, some homeowners may prefer to invest in a traditional life insurance policy, which gives their heirs the flexibility to use the payout as they see fit.

Estate planning

Having a will or a trust lets you dictate who receives what from your estate when you die. It’s also an important tool for homeowners who want to ensure their home gets passed down to the person or people they want to have it.

Creating an enforceable will is especially important if you have loved ones who aren’t related to you but whom you’d like to have a right to the home. Without a will, state laws will determine who inherits the property. Generally, these laws onlyconsider the closest legal relatives eligible to inherit parts of an estate. For example, if you’re cohabitating and your partner isn’t a co-owner, they may lose the home after your death if you don’t include them in your will.

When you’re estate planning, consider refinancing your home to lock in a lower interest rate. A lower interest rate may lower the financial burden of the outstanding mortgage payments your heirs assume.

The bottom line

Thinking about your death or the death of a loved one is never easy. But you and your heirs can take comfort and find peace of mind knowing you’re taking steps to plan for the eventual transfer of your property and payment of anyoutstanding mortgage balance. Speaking with an estate planner or financial adviser can help you decide which options may be best for your situation.

If you want to refinance your mortgage as part of your estate planning or you’ve inherited a home from a loved one, we can help. Start your application with Rocket Mortgage®. We can help you navigate your options during this sensitive time.