In the final installment in our series on handling debt after death, we’re taking a look at mortgage debt. This is often the first type of debt that people think about with inherited debt, simply because homes are typically the most expensive thing a person will ever buy, and people often take out 30-year loans.
But is this something that you’ll have to worry about? And if you are already managing mortgage debt after a family member’s death, how are you supposed to handle it?
Keep reading for more details on what to do about paying off the deceased’s mortgage debt.
Dying With Mortgage Debt in America
Mortgage debt is really common in America. And it’s the largest source of debt, accounting for around 70% of all consumer debt. Of the people that own a home, 60% have a mortgage. In 2023, the average mortgage balance was $244,498.
So yeah, it’s common for the next of kin or the executor of a will to end up managing mortgage debt after a person’s death. The question is, what do they have to do about it?
What to do if You Have to Manage Mortgage Debt After a Death
Mortgage debt does not disappear after the borrower’s death. The lender is going to request payment from the estate as soon as they learn of the death, which you should contact them about immediately.
The mortgage payments will still need to be paid and the loan needs to remain in good standing, or you’ll have a whole other set of problems to deal with. Like auto loans, mortgage loans are secured debt that are secured by collateral. In the case of a mortgage loan, the property is the collateral. If the mortgage isn’t paid the lender can foreclose on it and the estate, along with its beneficiaries, will be left with absolutely nothing.
There are several options that the estate has for paying off a mortgage loan:
The Beneficiary Takes Over the Loan – Some mortgage loans allow for whoever inherits the home to also essentially inherit the mortgage loan. The benefactor would become the borrower and make the monthly payments as the deceased did. However, the lender may only be open to the option if a completely new loan is written up, which could mean things like the interest rate might change.
The estate sells the home and pays off the balance – This is a viable option if the benefactor doesn’t want to keep the home and the property is worth enough to pay off the balance. If the market is down and the home is worth less than the mortgage balance this option isn’t the best.
Estate pays off the loan and the benefactor owns it outright – If the estate has enough cash on hand or can sell other assets, there may be enough funds to pay off the mortgage balance. Just because there’s a mortgage loan, that doesn’t mean it’s near the average balance. It could be down to $10,000 or less. The estate could sell a vehicle or some furniture to make enough to pay the mortgage.
Direct Cremate can help you offset the cost of paying off mortgage debt with cost effective direct cremation services. Give us a call or text to learn how to arrange services wherever you are.
