Death of a Spouse & Mortgage
The death of one partner in a marriage can have significant consequences for a mortgage. Exactly what effect it has will depend on whether it was a single or joint mortgage, how much balance remained on the mortgage, and what other debts and assets the deceased left behind. There are many circumstances in which the surviving spouse may find himself forced to sell the property.
Paying the mortgage
In most cases, the executor of a will is required to settle any outstanding debts of the deceased person before he can distribute any inheritance. The first debts to be paid in this process are secured debts, including a mortgage and any car payments. If there is not enough cash in the estate, assets must be sold to pay the debts. This will often mean the property must be sold. Any leftover money from the sale will go toward the estate and, once other debts are paid, can go to the heirs.
Will there be enough left?
The house of a deceased mortgage-holder will be sold if the outstanding balance is too large to be paid through other assets such as savings. In most cases, this will depend on how long was left on the mortgage, meaning the house is more likely to be sold if the person was younger. This may also be affected by how much the person had in savings or investments.
Negative equity
For people in the early years of a mortgage, there is a risk of negative equity. This is when the market value of the home has fallen and is now less than the outstanding mortgage balance. If this is the case when the homeowner dies, the rest of the mortgage will have to be paid from other assets belonging to the deceased. If there are not enough assets to pay the mortgage, the remaining debt will be wiped out but the heirs will not receive any inheritance.
Joint mortgages
In the case of a couple having a joint mortgage, the death of one spouse will simply mean the other spouse becomes the sole mortgage-holder. As long as she can continue making the payments, the property will be unaffected. If she is no longer able to pay the mortgage, she may need to sell the property and move to a less expensive home. Another possibility would be to remortgage the property for a full term, lowering the payments.
Reverse mortgages
A reverse mortgage is a scheme by which a homeowner who owns his home outright takes out a loan against it. Instead of the homeowner making payments to the company, the company gives him a lump sum in cash, regular payments until he dies, or a combination of the two. When the homeowner dies, the total amount that has been given to him must be repaid from his estate. In most cases this amount will be large enough that the heirs, including a spouse, will need to sell the property. If they do not or cannot do this, the house will be seized by the company.
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