What are your options with your home loan if you lose a loved one?
Losing someone is hard, managing your home loan doesn’t have to be. Understand your options, from financial relief to ownership changes with this guide.
In the wake of the death of a loved one, you might be left to take care of their finances and assets while trying to navigate life without them.
Although it can be difficult to know what to do, your lender should be able to help step you through the process. If you’ve just inherited a mortgage, you’ve usually got a few options available to you.
What is a deceased estate?
A deceased estate refers to the assets, liabilities and possessions left behind by someone after they have passed away. It incorporates everything that the deceased person owned or had an interest in at the time of their death. This can include property, money, investments, personal belongings and any debts or obligations they had.
When a person passes away, their belongings are often distributed according to the instructions detailed in their will. If there is no will, the distribution of their estate is often dictated by the relevant state or territory inheritance laws.
What happens to the mortgage when the owner dies in Australia?
In the unfortunate event of a mortgage owner passing away, their debts and liabilities don’t disappear. Instead, the responsibility is transferred to their estate, co-owner or next of kin, who then need to continue to service the home loan. If the recipient isn’t able to afford the mortgage repayments, they may be able to sell the property to settle the outstanding balance.
When it comes to working out what to do with a mortgage after someone dies, you’ve usually got three main options:
Pay off the mortgage using funds from the estate
If the estate has sufficient funds, the recipients may choose to pay off the mortgage in full to clear the debt and transfer ownership of the property to the beneficiaries. That way, the recipients don’t need to worry about maintaining the mortgage repayments.
Sell the property
If the estate does not have enough funds to pay off the mortgage, or if the beneficiaries do not want to keep the property, they might decide to sell the property. The proceeds from the sale can then be used to pay off the mortgage, with any remaining funds distributed to the beneficiaries based on the terms of the will or the inheritance laws.
Transfer the mortgage
In some cases, the lender may allow the beneficiaries to take over the mortgage and continue making payments on the property. This option often depends on various factors, including the financial stability of the beneficiaries and the lender's policies.
What happens to a joint mortgage if one person passes away in Australia?
If you own a property with another person, the next step usually depends on what type of ownership structure you have set up.
Joint tenants
If you bought a property with your partner of spouse, there’s a good chance you have a ‘joint tenants’ arrangement with both of you owning an equal share of the property.
If this is the case and your partner passes, their share of the property is transferred to you. That means you’re solely responsible for servicing the home loan.
Tenants in common
Alternatively, if you own a property with a friend or family member, it could be under a ‘tenants in common’ agreement. Under this type of ownership structure, each owner can bequeath their share of the property to a beneficiary named in their will rather than their co-owner.
How to handle deceased estates
If your loved one has recently passed, often the last thing you want to do is deal with the home loan but it’s important essential to get the transfer of ownership organised as soon as possible.
While your lender will likely have their own process for dealing with deceased estates, here’s what usually happens:
Notify the lender
As the surviving joint mortgage holder or executor of the estate, you’ll need to notify the lender of the death. It’s critical to do this as soon as possible so your lender can help step you through the rest of the process. You might have to provide a copy of the death certificate as proof of their passing.
Assess mortgage
Once the lender is aware of the circumstances, they’ll assess the joint mortgage to determine the outstanding balance, interest rate and any other terms of the loan. They’ll also work out whether the mortgage payments are up-to-date or behind.
Provide options for the estate
From here, your lender will usually provide you with several options to choose from, including:
Sole responsibility by the survivor
If the joint mortgage was structured as 'joint tenants with right of survivorship,' you as the surviving joint holder automatically become solely responsible for the mortgage. This means that the mortgage continues as usual, with you taking full ownership of the property and responsibility for the mortgage debt.
Sale or refinancing
Alternatively, you might choose to sell the property or refinance the mortgage. Selling the property would typically involve paying off the remaining mortgage balance from the proceeds of the sale, while refinancing may involve transferring the mortgage to a new loan or lender.
Settlement of the deceased’s share
If the joint mortgage was held as 'tenants in common,' the deceased person's share of the property and mortgage will be part of their estate. In this case, the surviving joint holder may need to buy out the deceased person's share of the property or negotiate with the executor when it comes to the settlement of mortgage debt.
Negotiate with the lender
Similar to the process with a sole mortgage holder, the surviving joint holder or the executor might need to negotiate with the lender regarding the terms of the mortgage, including extending the repayment period or restructuring the loan, to make it more manageable.
When you lose a loved one, you often don’t consider what to do with their mortgage or property, but it can help to know you have options available to you. If you need help, don’t hesitate to reach out to your lender. They often have teams that are dedicated to supporting you through difficult times.
If you need support, please visit our important links to vulnerable customers, which can assist customers impacted by family bereavement.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Tax law is complex and subject to change. For the latest information, check the ATO website or with your accountant or financial advisor.
Unloan is a division of Commonwealth Bank of Australia is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
