The death of a mortgage borrower can be difficult to think about but unfortunately, it does happen, leaving many people to cope with the financial weight of paying for a mortgage alone.
When a mortgage holder dies, the debt doesn’t die with them. It must be paid by the executor out of the estate before any savings are passed on to the family or other named beneficiaries in the will.
If it’s a joint mortgage, the surviving partner will inherit the other’s person’s share of the property, but this can come with its own complications.
We’ve gathered the key information on this here:
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What type of mortgages are affected by the death of a borrower?
In the event of a death, the type of mortgage you have can affect how the property (along with any mortgage debt) is inherited and by whom.
Joint mortgage and the death of one party
When there is a joint mortgage and the death of one party, the surviving partner will inherit the other’s share of the property (assuming the couple are joint tenants at the time). The death of one of the joint mortgage holders would also leave the surviving homeowner solely responsible for the remaining mortgage repayments, so if there is no insurance in place, they would be left to pay the outstanding debt on their own.
Tenants in common mortgages and death
If one of the share owners of the tenants in common mortgage passes away, their share will pass to their heirs through a will rather than to the surviving tenants.
That’s why it is crucial to write a will, as if there isn’t one, any property would be shared out according to the rules of intestacy. This could result in your share of the property being left to someone you might not want it to be given to.
A sole mortgage is taken out in just one person’s name and it is their sole responsibility to meet the monthly payments. If the homeowner has died and they have named a beneficiary, then the property and any mortgage debt is inherited by them. If no beneficiary has been named, the lender still has a right to claim their money back and can do this by selling the property.
Can transfer your mortgage after death in the UK?
Many homeowners name a family member (or sometimes a friend) as the sole beneficiary of their estate via a will. This will mean that the nominated family member inherits the property along with any mortgage debt left.
If you’ve inherited a property with an outstanding mortgage, you might decide that you want to sell the property to settle any mortgage debts left by the deceased mortgage borrower. However, you may be able to keep the property and remortgage to make the repayments more affordable for you.
Additionally, the deceased homeowner may have other debts, and an “executor” may use any assets, which could include the property, to pay off any of these debts.
Should you write a will in case of death upon a mortgage?
If you have a mortgage and pass away, a will can resolve any questions about who is entitled to your estate and therefore who is left to pay the mortgage. In situations where the mortgage is in a sole name but the homeowner lives with a partner, a will can ensure that your loved one is safeguarded and left with a home.
Who pays the mortgage debt after death?
After the death of the mortgage holder, you may become the reverse mortgage holder, which means that as well as the property, you may inherit the debt of that mortgage. This can leave many people with the mortgage debt of a deceased parent, spouse or loved one, causing financial problems and stress.
In some cases, there is a life policy or form of mortgage death insurance which could pay out and cover the mortgage. If there is no such cover, this could leave the remaining person on the mortgage or the beneficiary with an unaffordable debt.
It is for this reason that advisors will normally recommend that sufficient life insurance is in place to cover the mortgage in the event of the death of the borrower.
What happens if you can’t afford to pay the mortgage after a death?
If you inherited a property from a deceased mortgage borrower that has a mortgage debt, you may be wondering what your options are. Fortunately, these can include:
- Asking the lender for a payment holiday
- Increasing the term extension of the mortgage to bring the monthly cost down
- Changing the mortgage from a repayment mortgage to interest only
- Remortgaging to find a lender with a better interest rate to reduce payments
- Selling and downsizing to a more affordable property
- Paying off a chunk of the mortgage with cash from insurance / employer death in service benefit
What if the options for mortgage payment after death aren’t viable for you?
If these aren’t options for you and you fall behind on the mortgage repayments, the house could eventually have to be repossessed to cover the debt of the deceased homeowner.
It can be helpful to talk to an advisor about inherited mortgage debt as they can compare all of the options available to you and work out which one is most affordable based on your circumstances. Contact a specialist for advice on this.
Remortgaging the property after the borrower’s death
If you decide that you need to remortgage in order to find a better interest rate to make your inherited mortgage payments more affordable, your first port of call is your existing lender as they should be more flexible.
If this lender isn’t able to help (for instance, they might not accept credit issues etc.) then there may be other options based on:
- Your affordability – they may use a mortgage calculator to determine whether you can afford a mortgage alone.
- Your employment – they may look at how much you earn in salaries and bonuses.
- Self-employed – they will want to know how long you have been self-employed and whether your income is reliable or not. They may require your books to determine this.
- Any benefits, pension, insurance payouts that you have or are expecting to receive in the future.
Can you remortgage a house after death with bad credit?
Yes, if you’ve inherited a house and have bad credit, remortgaging is possible, in the right circumstances. When assessing your application, lenders may consider:
- The severity of the debt
- The date the issue was registered
- If the debt is settled
- The cause of the credit issue
You may find that there are fewer lenders to choose from if you have bad credit and the interest rates may also not be so favourable. Because of this, it can be helpful to speak to a bad credit mortgage expert who can find you lenders who are more willing to approve you. Contact us for more information on this.
Should you get mortgage death insurance?
It is strongly recommended that whenever you take out a debt and regularly throughout the lifetime of it you review your insurance arrangements to make sure that in the event of their death or a spouse’s death, the mortgage and any associated living costs are covered.
What are the different types of death mortgage insurance?
|Life Insurance(DeathMortgage Protection Insurance||This is insurance that pays off a mortgage in case of death. It’s important to always read the terms and conditions of your insurance policy to check that it includes all forms of death including mortgage insurance for accidental death.|
|Critical illness insurance pays a lump-sum amount if you or your covered family members are diagnosed with a critical illness, such as a heart attack, stroke or cancer.|
|Income Protection Insurance||Income protection insurance covers general income in the event that you are unable to work because of sickness or disability. The payments can be used as you see fit i.e. for bills and other expenses.|
|Payment protection insurance||Payment protection is an insurance policy that will cover the cost of your mortgage payments, in case you become sick, disabled,or even unemployed. The insurance payment is made directly to the mortgage lender rather than the beneficiaries of the property or will, so in the event of a spouse’s death, the mortgage would still be paid.|
How much does mortgage death insurance cost?
There are a wide range of insurance companies that offer varying policies and conditions, which can make it confusing when comparing costs for mortgage death insurance. Because of this, it can be helpful to speak to an advisor as they can find the best mortgage death insurance rates, based on what you need to be insured. Contact us for help with this.
Why you should speak to an expert in transferring mortgages after death
The brokers that we work with are trained advisors and have a wealth of knowledge about mortgages after death. They can provide you with confidential and impartial advice and research the best solutions for you.
Here at Online Mortgage Advisor, we take pride in providing a 5-star service with access to expert advisors who are:
- Whole of market brokers
- OMA Accredited
- LIBF Training course qualified
- Experienced in helping customers in this very situation
Speak to an expert about transferring mortgages after a death in the UK
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