06, June, 2023

What happens when you inherit a house with a mortgage?

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If I inherit a house with a mortgage do I have to pay it off?
When you inherit a house, you also inherit any debt attached to the house.

When inheriting a property, you may wonder what happens when you inherit a house with a mortgage. (Click here for information if you’ve recently inherited a house with no mortgage). Unfortunately, the debts of the deceased still need to be paid and this means that the responsibility of the mortgage can fall upon the beneficiary. With money still owed, the lender has the right to demand the full amount to be repaid and this can lead to a variety of different ways of paying the remaining amount.

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The estate pays the remaining balance

When someone passes, their estate is totalled up and before it is given to the beneficiaries named in the inheritance, it is used to pay any debts that the deceased may have had. This means that the mortgage could be covered by the estate and the beneficiary of the property won’t have to worry about making repayments.

However, for this to happen, it needs to be explicitly mentioned in the will that the mortgage should be paid on behalf of the beneficiary.

The property covers the remaining mortgage

When inheriting a property, the responsibility to repay the mortgage falls upon you. When this happens, it will be determined if you are able to continue to make the payments, but it’s not always possible to add a mortgage to your budget.

If it is not written into the will that the assets should be used to pay the remaining mortgage and you’re unable to take on the debt, then the property can be sold to cover the costs. In this scenario, the beneficiary sells the house and whatever outstanding payments were owed on the mortgage can be finalised with the sale proceeds.


You pay the mortgage

Once a property is inherited, the responsibility of all payments from household bills to the mortgage fall to the beneficiary. If the mortgage is not covered in the will, you can decide to take the repayments on yourself.

There are a variety of ways this can be done; if the deceased had a life insurance policy and you received a settlement, then it may be a way to pay the mortgage entirely. Alternatively, you can add the remaining payments to your monthly outgoings until the remaining amount is paid.

Letting the property

If you decide to take on the mortgage payments, then the house is officially yours and this may lead to you choosing to rent it to help bolster your income. If this is the case, then a new buy-to-let mortgage will have to be arranged and any profits you make from tenants will have to be declared for tax purposes.

Selling the property

If you do decide to sell the property, buying a house with the inheritance money that is left over is a good alternative. You can then use these proceeds to purchase a property that you really want, giving you a head start of jumping on the property ladder.

The property has a joint mortgage

Taking out a joint mortgage with someone means that you both own a part of the property. However, with a variety of different options available, there can different outcomes upon a passing:

  • If the property was owned under joint tenancy then the other member of the joint mortgage will inherit the entire house. This means that any debts on the property including the full mortgage are now their responsibility.
  • If there is a tenancy in common agreement, then the share of the property held by the deceased will go to whoever they name in their will. This means that while it could transfer the ownership of the property to the common tenant, it could also go to someone else or be used to pay any debts.
  • Finally, if there is no will, then the beneficiary of the property share will be decided through a legal process.

When someone passes, it is typically those closest who have to do the most work and in this scenario, the idea of adding a mortgage to your monthly outgoings can be stressful. However, while lenders can demand the payment right away, they are typically sympathetic and will help you through the process to find the best result for everyone.

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