What will happen to your mortgage if you pass away?
Someone must pay your mortgage after your death as it is attached to your home, not you. Death is inevitable for all, and the mortgage debt must be settled. However, how the mortgage payment will be scheduled or who will pay it depends on personal circumstances.
In Canada, the mortgage payment will stay with the property so that the debt will remain attached to the home after the owner’s passing. To simplify it, if the property owner who has the mortgage dies, his/her estate will be liable to pay off the remaining mortgage balance.
Mortgage after the death of your spouse:
If you bought the property with your spouse, your spouse would most likely be responsible for the mortgage. The lender will examine the situation and then decide based on the surviving spouse’s financial condition and the mortgage term.
In most cases, if the spouse has sufficient income, or enough money in the bank account (cash from life insurance), the lender will allow the spouse to pay the rest of the term as scheduled after all lenders want to receive their money and minimize their risk.
After the term ends, the surviving spouse must not re-qualify the mortgage, as the process will be a renewal of the mortgage. At the end of the term, the lender may ask some underwriting questions to ensure the surviving spouse’s capability of paying the scheduled payments. It does not matter if the surviving spouse is a stay home dad or mom; if he/she has the means to pay the mortgage and the lender is convinced the risk is low, there will not be a problem.
Mortgage after death, legal process:
This process can take up to months after the owner passes. Everything depends on the estate process, between the fees that must be paid (e.g., probate fee), the legality of the matter (e.g., lawyer and estate executive) and sending the death certificate lender; we are looking at the lengthy process.
The owner’s name will be removed from the title and the mortgage, and the surviving spouse will be contacted to be asked what their plan is for the property whether he/she wants to sell or refinance the property.
Keep in mind that if the death certificate has not been presented to the lender and they have not been notifying of the death of the dead spouse, it can be problematic in the renewal or sale of the property. The process can be delayed significantly.
The co-borrower’s (Co-owner) situation is quite like the surviving spouse. They both are considered joint tenants which means they both have an equal interest in the property. The surviving joint tenants, in this case, will get the title automatically and tax-free so that they will be responsible for the mortgage.
Unlike joint-tenancy, tenants-in-common owns different parts of the property and can do as they wish with their fair share. In this case, the beneficiary of the dead tenant (according to the estate and will) would receive their portion of the property and is responsible for the mortgage.
Mortgage after death protection:
There is always mortgage insurance to cover all or most of the mortgage liability on the property. Mortgage insurance is a great way to secure the spouse or estate’s financial future and eliminate mortgage liabilities. However, there are some significant problems with mortgage insurance, such as high insurance premiums and a lack of flexibility and options.
The better way to go about mortgage insurance can be term insurance, which you can tailor to your situation. With this option, you can pick a beneficiary and allow them the flexibility to pay off the mortgage or keep paying the mortgage payments.
Mortgage after death conclusion:
In conclusion, the mortgage after the death of the owner will depend on the negotiation between the lender and the surviving party and the financial means of the surviving party.
The loan can be transferred to the owner’s heir; however, it will be conditional on the lender’s approval.
Mortgage after death can be a complicated matter, as it truly depends on the deceased marital and estate status. If the property had co-owners or not, or whether the lender is strict or not.
It can be challenging to think about our death and prepare for it. However, it is a must, no matter how uncomfortable it may make us feel.
Mortgage after death is an important matter so, we highly recommend everyone to have a valid will and consider what will happen to their debts after they pass away. A mortgage is a debt, even though it is a secure loan, and it must be paid one way or another.
If the person who inherits the property, whether it is our spouse, co-owner or estate, must pay the loan. The payment can be in full or the continuation of mortgage payments (after negotiating with a lender), and in both cases, financial strength is a necessity. In case the surviving party default on the mortgage payments, the lender has the legal right (power of sale) to come after their debt and put the property for sale to collect their debt.
It is highly recommended to purchase a life insurance policy, so your heir would have the financial ability to pay off the mortgage or make the payments. They can then decide whether they want to live in that property or sell it later when the market condition is right.
AplusWealth is here to help you cover your mortgage liabilities!
An expert advisor is the best person to help you secure your family’s financial future and guide you to find the best life insurance type. A financial advisor or insurance agent will assess your financial needs, look at the existing life insurance policies you may have. They will find a way to cover all your life insurance needs within your budget and according to your mortgage needs.
Life insurance and the covid-19 pandemic process are done entirely online. Thanks to our expert advisers who are entirely comfortable with the online life insurance & investment platform, you can take advantage of their expert opinion about if nothing has changed by taking your age and health, liabilities, and goals into consideration. At Apluswealth, you can get a quote, compare quotes, and find the life insurance quote you feel comfortable with. Our life insurance advisors will provide you with quotations and the most suitable policy types. Contact our expert advisers today and find out which is the best life insurance for you.
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