When you take out a mortgage loan, you probably aren't worried about dying before you pay off that debt. But sometimes it happens. You might not outlive your mortgage loan. In such cases, funds from your estate will usually -- but not always -- be used to pay off the remainder of your home loan.
When a mortgage borrower dies, her estate is responsible for paying the loan off unless there is a surviving spouse who is also on the mortgage note. If the surviving spouse is on the mortgage note, he is responsible for making the payments.
Debt After Death
If you die while still owing mortgage payments, your lender will generally seek money in your savings account, insurance policies, annuities and IRAs, among other assets of your estate. It can also include cars, second homes, rental properties and anything else that you own that can be sold for cash. After you die, your assets will be converted to cash to cover as much as possible of your mortgage debt.
When Estate Assets Aren't Enough
If the cash value of your estate simply isn't large enough to pay off your mortgage debt, your lender might have little choice but to take over your home and try to sell it to recover your mortgage debt. Most mortgage lenders include a clause in their mortgage-loan documents stating that they have the right to take over and sell a residence in the event the mortgage holder dies before fully paying off the loan.
Survivor Loan Payments
If your spouse has her name on the mortgage loan, she will be responsible for making the home loan payments after you die. If you die early and your salary suddenly disappears, your spouse might struggle to make these payments. In such cases, your spouse can try to negotiate a mortgage modification with your lender, hoping to persuade your mortgage company to lower the monthly payment through such steps as reducing the loan's interest rate or forgiving a portion of its principal balance. Your spouse might have to sell the home if the mortgage payments are too high and your lender is unwilling to modify them.
Children Not Liable for Debt
After you die, your children will not be burdened with your mortgage debt. Your home-loan debt will not be passed from you to any of your family members whose names were not on your mortgage loan. This doesn't mean, though, that dying before you pay off your mortgage loan won't impact your children. If you had planned to leave them money or assets after your death, this inheritance might be reduced because some of the assets or dollars must go instead toward paying off your unpaid mortgage. Maybe you wanted to leave your home to a son or daughter. If your lender has to take over possession of your home and sell it to pay off your mortgage debt, you won't be able to do this, either.
- The Law Dictionary: What Happens to a Mortgage When Its Holder Dies?
- What happens to my reverse mortgage when I die?
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 936 (2019), Home Mortgage Insurance Deduction." Accessed Oct. 31, 2020.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.