Dealing with a loved one’s mortgage after they have died is difficult.
But it can’t be avoided.
Maybe you will sell the property after probate. Or you might keep it.
Either way, you need to consider its mortgage.
Overview of factors to consider
When the borrower passes away, the outcome of the mortgage depends on several factors:
- The type of property ownership in place
- The existence (or lack) of a will
- The relationship status (i.e., spouse, child, grandchild, etc.) of deceased and inheritors
- The surviving partner or inheritors’ financial situation.
And remember: Probate property can’t be sold until the probate is complete. It must also be valued during this time.
Joint property ownership situations
Property (or land) can be jointly owned in two main ways: tenants in common or joint tenancy.
Joint tenancies
Joint tenancy is a popular choice of homeownership.
It’s often used by couples so that one partner will inherit the property without probate.
But it’s important to consider the implications of sole responsibility for mortgage.
The ‘right of survivorship’ clause passes the mortgage onto the surviving partner. The latter must notify the mortgage lender of their partner’s death as soon as possible.
Updating the mortgage
They will guide you through the necessary steps to update the mortgage account. This 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. This could be children from a previous relationship.
Unlike joint tenancy, property shares from tenancies in common can be unequal. And they can be passed on to beneficiaries through a will.
If your partner dies and you have a tenancy in common, their property share will be distributed according to their will.
(Without a will, intestacy rules apply – 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 mortgage.
However, their share might be left to someone else.
For example, 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.
Other factors to consider
When you inherit a property, you must pay taxes. These include stamp duty and capital gains tax.
This process usually takes 6 – 12 months. However, mortgage fees can be paid from the estate.
What to do if I can’t afford the mortgage after my partner dies?
1. Speak to your mortgage provider
The first step is to contact your mortgage lender and explain your situation.
They may offer temporary solutions. For example, 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
You can rent out some of the property for income to cover the mortgage payments.
4. Life insurance
Life or mortgage protection insurance could cover the mortgage.
It’s important to review any insurance policies and contact the providers.
5. Government support
In some cases, you may be able to access government benefits or support services. These might be able to help with mortgage payments.
Government organisations 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 will, intestacy rules will apply.
This means the surviving spouse inherits the deceased’s property share 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, parents, or siblings.
Without a will, distributing the estate can be more complex and time-consuming.
An administrator may be necessary to manage the estate. And to 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.
The importance of leaving a will
Dying intestate can lead to consequences that don’t reflect the deceased’s wishes.
Homeowners must create a will that outlines their intentions for their property.
Regularly reviewing and updating the will, especially after significant life events such as:
- Marriage
- Divorce
- The birth of a child.
Can I buy other people out of an inherited property?
If you have jointly inherited a property, you may buy out their shares to become the sole owner.
This helps if you want to continue living in the property. Or if you believe its value has the potential to increase over time.
But you must value the property to determine the current market value. You can then negotiate with the other inheritors to purchase their shares.
It’s essential to have a written agreement outlining the terms of the buyout
If you cannot afford to buy out the other inheritors, you can sell the property and divide the proceeds.
This can be a more straightforward solution. Especially if the property needs repairs or the inheritors disagree about what to do with it.
Selling inherited property quickly
Do you need help selling a probate property?
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