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It's never easy thinking about the potential death of a loved one, and for that reason, many of us put off making a will or discussing financial arrangements. Although many older people will have paid off any remaining mortgage debt by the time they die, increasingly this is not the case. People now have to borrow more for longer to afford the house of their dreams, often resulting in people dying with mortgage debt left outstanding.
If your parents die with an outstanding property debt, you may be wondering can I take over my parents' mortgage after their death?
In most instances, executors for the deceased will usually want to sell the property to pay off any remaining debt. Any money left over from the sale after this debt will then be passed on to any beneficiaries who have been named in the will. If there isn't a valid will, then rules of intestacy will determine who inherits.
What if circumstances are different, perhaps with a single person being named as the executor? They may want to move into the property, and perhaps take on the mortgage.Find Me A Mortgage
In many cases, it may be possible to take over the mortgage on your parents' property after they have died, but this is by no means guaranteed. Outstanding debts will still need to be paid, and monthly payments will need to continue until the debt is paid off. Lenders have the right to force the sale of a property in order to recover the full outstanding balance of any mortgage. In most cases, lenders will be flexible and sympathetic and understand the legal process of winding up an estate can take time.
If you have inherited the property, and want to keep it in your own name and not be forced to sell it to pay off the debt, you will need to go through a standard mortgage process. This will include an assessment of your ability to afford the ongoing mortgage payments. This means that should you inherit a parental property that has a mortgage that is beyond what you could otherwise afford, you would be unlikely to be able to continue with the mortgage secured on the property by your parents.
Effectively, you'll need to make a new mortgage application. If this application is rejected then the property will need to be sold, unless you have insurance or savings which can be used to bring down the remaining debt enough to make a mortgage in your own right possible. Use our affordability calculator to discover how much you might be able to afford to borrow. So if you're asking, can I take over my parents' mortgage after their death, the answer depends a great deal on your own finances.
If a parent has died, but their partner is still alive and has a mortgage in joint names, then they will be "jointly and severally" liable for ensuring that monthly repayments continue. When a partner or spouse dies, the home will not automatically be transferred to the surviving partner if there is an outstanding mortgage on the property. For the property and the outstanding debt to be transferred to a sole partner, they would need to apply for a mortgage on the outstanding debt in their own name.
As in the case of inheriting property, they would need to pass affordability tests to ensure that they can realistically afford to continue with the payments. If the surviving partner cannot afford the payments on their own, then the lender has the right to force the sale. In most cases, lenders will be flexible and will understand that this is a sensitive issue that needs to be handled carefully.
If the deceased partner had a life insurance policy in place, then life insurance payouts may cover the remaining debt or reduce it to an affordable level. For this reason, many mortgage brokers will advise borrowers to take out a life insurance policy sufficient to cover any outstanding debt should one of the borrowers die before the end of the mortgage term.
If your parents have died with debts and you are the executor of their estate then you will be required to pay off these debts from the estate. These will usually be paid off in order of priority with secured debts, including the mortgage as one of the first debts to be paid. The next priority will be funeral expenses, followed by unsecured debts and credit cards.
If these debts are significant and the largest asset your parents held was their property, then you may need to sell that property to settle other debts along with the mortgage. Other assets that can be sold include vehicles and other valuables such as antiques. Once all debts have been settled, the remaining assets can then be divided among the beneficiaries as set out in the will. If there is no valid will, the estate will be divided according to the intestacy rules.
If your parents die with a mortgage on their property, it's important to first ascertain the size of the remaining debt. If the entire value of the estate is to be divided between several beneficiaries then the property may need to be sold. If you wish to continue with the mortgage and perhaps take ownership of the property, then the share of other beneficiaries might need to be paid from other sources. If you are the sole beneficiary, you will have to decide whether to keep the property yourself or sell it to pay off the remaining debts.
An experienced mortgage advisor will be able to advise you about mortgage options should you choose to take on the outstanding debt on your parents' property. WIS Mortgages are experienced mortgage advisors based in London, Kent and Buckinghamshire, but operate across the UK. We offer free advice, charge zero fees and can provide specialist advice for contractors.
Get in touch today to find out more about how we can help.
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