What Happens with Your Home Loan If You Pass Away?

It can take decades to pay off your home loan. With this in mind, there may be unfortunate times when some homeowners pass away before they’re able to fully repay their mortgage. What happens to debt in this situation depends on the personal circumstances of the homeowner. 

What happens to your mortgage if you pass away?

In a situation where a homeowner passes away, your mortgage doesn’t just disappear. Instead, it’s usually transferred to someone else to take care of. Who this responsibility passes to depends on whether or not you have a will. Here’s how the process typically works.

What happens if you have a will

Typically, when you draw up a will, you identify one or more beneficiaries as part of your estate. You’ll also appoint an executor to distribute the assets of your estate. Your estate refers to everything that makes up your net value, including real estate, vehicles, cash, stocks and other assets that you either own outright or have a controlling interest in. 

You would usually list out all your assets and detail what you would like done with or who you would like to inherit them. From here, it’s up to the executor to distribute everything according to your wishes. 

When it comes to real estate, most people are pretty specific about what they’d like done with their property and who they’d like to inherit it. In the unfortunate event of your death, your property would be transferred to the beneficiaries named in your estate. If your beneficiaries aren’t able to take on any outstanding debts, like a home loan, they might have to sell the property to pay off the mortgage. Alternatively, they might choose to take on the mortgage as is or refinance it.

What happens if you don’t have a will

Things are a little different if you don’t have a will in place. If you purchased the property with your partner or spouse in a joint tenants arrangement, your property and the remainder of your mortgage will automatically be transferred to them. 

If you’re the sole owner of your property, your assets, including property, are typically transferred to your next of kin. Inheritance laws differ depending on your state or territory, so for the sake of clarity, it helps to have a clear will in place.  

Can you inherit debt in Australia?

In short, yes, you can absolutely inherit debt in Australia. Mortgages are a big financial responsibility, and in the unfortunate event of someone passing away, they don’t disappear. Your bank will still want to make sure your loan is settled. That means that your mortgage will be transferred to your estate, your co-owner or your next of kin to take care of. 

If you don’t want your loved ones to be left with your mortgage in this situation, there are some steps you can take to protect them from such financial burden.

Tips for transferring your mortgage after death

In the wake of your passing, the last thing you want is to leave your family with outstanding debt to manage. You can be organised and take action now to make sure your family is taken care of and does not inherit your mortgage debt in the event of your death.

Take out life insurance

Taking out a life insurance policy can help to protect your family in the event of your passing. If you have a sufficient death benefit, your family can use the proceeds to pay off the remaining balance on your mortgage. This means that they can keep the family home without worrying about mortgage payments. Depending on your payout and the size of your mortgage, there could even be enough to cover ongoing property expenses too.

Purchase mortgage protection insurance

Mortgage protection insurance is designed to help your family manage your mortgage in the event of your death, disability or involuntary unemployment. If you were to pass away, mortgage protection insurance can provide coverage for your mortgage repayments. That way, your family can continue to meet their financial obligations and remain in their home. You can often tailor your policy to suit the outstanding balance of your mortgage.

If you already have life insurance, you generally don’t need to take out mortgage protection insurance too. You can usually get away with one or the other, but make sure you do your own research or seek financial advice, so you settle on a policy that suits your individual needs. 

Draw up a will

Regardless of whether you have an insurance policy in place, you should still draw up a will. Having a will in place is the clearest way to ensure your assets and belongings are distributed as you like. It’s also important to name an executor as part of your will. They’ll be in charge of managing and distributing your estate, so be sure to choose someone you trust to carry out your final wishes. 

By being organised, you can ensure some peace of mind for yourself and your family. 

Get a will drawn up and consider taking out an insurance policy. If you’re not quite sure what to do, it could be worth chatting with a financial advisor to help you make an appropriate decision.

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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.