- Your estate pays off the mortgage. If your heirs would like to keep your house, and there is enough money in your estate to finish paying the mortgage, they can choose to do so. If you’d like for this to happen, you should make it clear in your will to avoid confusion. In some cases, a life insurance policy can also be used to finish paying off the mortgage.
- A surviving relative takes on the mortgage. If a surviving relative who is named in your will decides to take on ownership of your home, that person will take on the mortgage as well. They will likely want to refinance, especially if this helps them get a lower rate or monthly payment. The person who inherits the home always has the option to simply assume the deceased’s mortgage by notifying the lender, so if they can’t qualify for a mortgage on their own but can keep paying the original one, they can keep the home.
- Your heirs sell it or walk away. If your heirs can’t afford the mortgage and your estate can’t or won’t pay it off, then they can choose to either sell the home or, if it’s underwater (worth less than is owed on the mortgage), walk away. This means leaving the house for the bank to foreclose on it.
Now we will continue our discussion of what will happen to your debt if you die - what if you still owe mortgage when you pass away? There are 3 scenarios could play out -
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