It usually means that you will need to consider selling the house as you will need to pay back the loan in full. You don’t necessarily have to sell the property, however.
How do I keep the property but pay off the loan?
The first thing that you will want to do if you want to pay back the loan is to see if the deceased had any credit insurance. This insurance will pay off the debt from the equity loan and leave you free from it so it’s worth investigating if there was any in place. If there isn’t, you can either pay off the debt yourself if you’re in a financial position to do so or if you’re not you can look into taking out your own mortgage. This way, you can pay off the equity loan and pay the mortgage monthly to make it more manageable.
What if the house is in negative equity?
If the property you have inherited has negative equity, then the debt that’s attached to it is more than the value of the property itself. In this case, you still have a few options.
If you aren’t in a position to take on the debt and you aren’t invested in keeping the house, you are able to disclaim the inheritance and avoid any financial responsibility that goes along with it. If you decide to do this, you need to be aware that if you refuse the inheritance of the house you refuse anything else that was left to you. You aren’t able to pick and choose what you inherit and what you don’t; it’s all or nothing.
If there are other assets that you’re not prepared to let go of but want to try and resolve the debt quickly, get a quote today from We Buy Any House.
Do I still have to pay taxes?
One of the good things about an equity loan on a property is that it can reduce any inheritance tax that you might need to pay. You’ll be charged inheritance tax of 40% if the estate is worth over £325,000, so the equity loan can keep the value of the deceased estate under this and save you paying the tax. It’s also fairly unlikely that you’ll be charged capital gains tax if you decide to sell the property, as the property value is likely to be lower than it was originally.
It’s also helpful to know what happens when you inherit a house with a mortgage, as there are similar issues to inheriting a house with an equity loan. Knowing exactly what you’re dealing with is the key to managing the situation in the best way possible, so researching whether it’s best to sell the property to pay off the equity loan or if you’re able to finance the loan the other way is a great step towards deciding what you want to do.
When you inherited you may have been wondering, how long does probate take? We’ve outlined the process so you can know everything you need to, easing your mind in a stressful time.