What happens to your mortgage when you die?

The majority of consumer debt in the U.S. is related to mortgages: according to data from the Federal Reserve Bank of New York, Americans owe more than $12 trillion in mortgage obligations. This accounts for over 70% of the total household debt in the country, which exceeds $17 trillion.

Many borrowers find themselves trapped in their mortgages for decades, and many of them pass away without ever fully paying off their debt. When they die, leaving behind mortgage debts, their heirs may face a difficult choice.

What happens to your mortgage when you die?

After the death of the homeowner with a mortgage, the mortgage does not simply disappear - it is a debt that belongs to the estate. The estate includes all the assets and liabilities of the deceased person. The executor or administrator of the estate is responsible for managing the estate's finances, including the mortgage. Mortgage payments can be continued from the estate's funds.

If there is a co-borrower or guarantor on the mortgage, that person is responsible for continuing the mortgage payments.

Some homeowners have life insurance policies designed to cover their mortgage in the event of their death. If the owner had such a policy, the insurance payouts can be used to pay off the remaining mortgage debt.

What should a family do if they want to leave their home?

If the deceased's family wishes to keep the property, some mortgage agreements allow a relative or heir to assume the debt and continue making payments. This option requires the lender's approval and may involve meeting certain financial and credit conditions.

If family members successfully transfer ownership through the loan and continue making payments, the house can remain with them. If the family decides to sell the property, they will need to continue making payments until someone buys it.

What happens if mortgage payments stop after the homeowner's death?

If the mortgage is not paid after the owner's death, the lender can begin the foreclosure process. However, if an heir is named but refuses to sell the house or fulfill the payment obligations, the lender retains the right to transfer ownership, which can lead to foreclosure and significant damage to the credit rating of the non-compliant heir.

When someone dies without a will, a process known as intestate succession determines the distribution of their assets, property, and debts, including mortgages. The court appoints an executor of the estate, often a close family member, to manage the distribution of their assets and debts.