When a loved one dies, dealing with their mortgage can make grieving even more difficult.
Handling this well can make things a bit easier for yourself and those around you.
Let’s explore the various scenarios and steps involved when facing this situation.
Overview of factors to consider
When the borrower passes away, the outcome of the mortgage largely depends on several factors:
- The type of property ownership in place
- The presence (or lack thereof) of a will
- The relationship status (i.e., spouse, child, grandchild, etc.) of deceased and (potential) inheritors
- The surviving partner or inheritors’ financial situation
Joint property ownership situations
Property (or land) can be jointly owned in one of two main ways: tenants in common or joint tenancy.
Joint tenancies
Joint tenancy is a popular choice among couples who want to ensure that their partner will inherit the property without the need for probate.
However, It’s important to consider the implications of becoming solely responsible for the mortgage.
Under the ‘right of survivorship’ clause, the mortgage will automatically pass to the surviving partner without probate when a joint tenant passes away.
The surviving partner is solely responsible for making the mortgage payments and ensuring the loan is paid in full.
If you find yourself in this situation, notifying the mortgage lender of your partner’s death as soon as possible is essential.
They will guide you through the necessary steps to update the mortgage account, which may require a copy of the death certificate.
While the property ownership changes, the mortgage terms generally remain the same. If you anticipate difficulty making payments, you should discuss potential options, such as:
- A mortgage holiday
- A repayment plan
- Alternative ownership structures
- Alternative financial planning strategies
Tenancies in common
A tenancy in common is a type of property ownership where each owner has a distinct share of the property.
It is often chosen by couples who wish to leave their share of the property to someone other than their partner, such as children from a previous relationship.
However, it’s crucial to have open discussions about its potential consequences. And to ensure that all parties understand their responsibilities in the event of one owner’s death.
Unlike joint tenancy, property shares from tenancies in common can be unequal and passed on to beneficiaries through a will.
If your partner dies and you have a tenancy in common, their share of the property will be distributed according to their will.
(Without a will, it will be distributed by intestacy rules – see below for more information on these.)
If the deceased partner’s share of the property is left to you, you will become responsible for the entire mortgage.
However, if their share is left to someone else, such as their children or siblings, the new owner will be responsible for their portion of the mortgage payments.
This can create a complex situation, particularly if the new owner cannot contribute to the mortgage.
In such cases, selling the property to pay off the mortgage and distributing the remaining funds according to the ownership shares may be necessary.
Setting up a life insurance or mortgage protection plan can provide financial security and help mitigate mortgage default risk.
What to do if I can’t afford the mortgage after my partner dies?
If you can’t afford the mortgage after your partner’s death, it’s crucial to act quickly.
1. Speak to your mortgage provider
The first step is to contact your mortgage lender and explain your situation.
They may offer temporary solutions, such as a mortgage holiday or a reduced payment plan, to help you through this difficult time.
2. Downsize
Another option is to consider downsizing to a more affordable property.
Selling the home and using the proceeds to pay off the mortgage can relieve you of the financial burden and allow you to find a more manageable living situation.
3. Let part of your property
Alternatively, you can rent out a portion of the property to generate additional income to cover the mortgage payments.
4. Life insurance
If your partner had life insurance or mortgage protection insurance, it could provide financial support to cover the mortgage in the event of their death.
It’s important to review any insurance policies and contact the providers. This will help you understand the claims process and the benefits you may be entitled to receive.
5. Government support
In some cases, you may be able to access government benefits or support services to help with mortgage payments.
Organisations such as Turn2Us and Citizens Advice can provide guidance and information on the available options.
6. Speak to a professional
It’s also worth considering seeking financial advice from a qualified professional.
They can help you assess your situation and develop a plan to manage the mortgage payments in the long term.
What if there is no will?
If your partner dies without leaving a valid will, their estate will be distributed according to intestacy rules.
Under these rules, the surviving spouse or civil partner typically inherits the deceased’s share of the property if its value is below a certain threshold.
If the value exceeds this threshold, the surviving partner may inherit a portion of the estate. The remainder will be divided among relatives, such as children or parents.
Without a Will, distributing the estate can be more complex and time-consuming.
An administrator may be necessary to manage the estate and ensure that the mortgage payments continue to be made during this period.
If you find yourself in this situation, it’s advisable to seek legal advice to understand your rights and obligations as the surviving partner.
The importance of leaving a will
Dying without a will, also known as dying intestate, can lead to unintended consequences and may not reflect the deceased’s wishes.
Homeowners must create a valid will that outlines their intentions for their property and ensures that their loved ones are provided for.
Regularly reviewing and updating the will, especially after significant life events such as marriage, divorce, or the birth of a child, can help prevent confusion and disputes in the event of an unexpected death.
Can I buy other people out of an inherited property?
If you have inherited a property with other beneficiaries, such as siblings or children, you may buy out their shares to become the sole owner.
This can be an attractive option if you want to continue living in the property or if you believe its value has the potential to increase over time.
To buy out other inheritors, you must value the property to determine the current market value and each beneficiary’s share.
You can then negotiate with the other inheritors to purchase their shares by paying them outright or arranging a mortgage to cover the cost.
It’s essential to have a written agreement outlining the terms of the buyout to avoid any disputes in the future.
If you cannot afford to buy out the other inheritors, you can sell the property and divide the proceeds according to each beneficiary’s share.
This can be a more straightforward solution, especially if the property needs repairs or the inheritors disagree about what to do with it.
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