What Happens to a Mortgage When the Owner Has Died?

When you pass away, your mortgage debt could be paid off by your estate or it could pass on to your spouse. The mortgage debt does not simply disappear and it has to be paid in one way or another. Some people purchase products like life insurance or mortgage protection insurance to take care of this debt.

Joint Owner

• If you own a piece of property with another person, this is known as joint ownership. For example, if you and a spouse owned the property together and you were both on the mortgage, you would both be equally liable for the mortgage debt. If you died, the mortgage debt responsibility would then shift solely to your spouse. The death of one of the guarantors does not remove the responsibility from the other party.

Estate

• If you do not have a joint owner on the mortgage, the mortgage will then have to be paid off by your estate. The executor of your will or the administrator assigned by the probate court is in charge of paying off all of your debts when you die. Any assets will be liquidated to repay the debts before they can be distributed to beneficiaries. This may involve selling the house to repay the mortgage debt.

Mortgage Protection Insurance

• A product that some homeowners purchase to deal with this issue is mortgage protection insurance. Mortgage protection insurance is a type of life insurance that pays off your mortgage when you die. The insurance company makes a direct payment to the mortgage lender in the amount of the outstanding mortgage balance. Some of these policies also provide benefits if you become disabled or unemployed. These plans are commonly offered by mortgage lenders and through private insurance companies.

Life Insurance

• Life insurance is another product that could help in this situation. If you have a life insurance policy, it will pay out a lump sum to your beneficiaries when you die. Your beneficiaries could then use a portion of the money to pay off your mortgage balance. This is similar to mortgage protection insurance except that it pays a lump sum to your beneficiaries instead of making a payment to the mortgage lender. This allows the beneficiary to decide how to handle the money.

No Beneficiaries

• If you have no beneficiaries to be concerned with, the mortgage lender will foreclose on the house and then sell it to pay off the mortgage balance. It would be unnecessary to purchase mortgage protection insurance or life insurance to resolve the mortgage balance when you die. All of your assets may be liquidated in order to pay off your total debts.