What Are Your Options With Your Home Loan If You Lose A Loved One?

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. Read on to learn more. 

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:

1. 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.

2. 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.

3. 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:

1. 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. 

2. 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.

3. Provide options for the estate: From here, your lender will usually provide you with several options to choose from, including:some text
   1. 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.

2. 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.

3. 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.

4. 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.

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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. Please consider seeking financial advice before making any decision based on this information.

If you need support, please visit our important links to vulnerable customers, which can assist customers impacted by family bereavement.