Mortgages

Mortgage and death: What happens to a mortgage when you die?

Mortgages belong to buildings, not people, so its always a good idea to have a plan in place to protect your family from the burden of a large mortgage debt
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Canadians are carrying record levels of household debt. The subject of what happens to a mortgage after death can be difficult. For many Canadians, your home is your largest asset and the mortgage is your biggest debt. Paying off loans is a main financial priority and paying off the mortgage ranks especially high on the list of financial goals.

But what happens if you die before achieving this goal?

Mortgage belongs to buildings not families

Mortgages and debt do not immediately become the responsibility of the surviving spouse or family members in the event of a death. A home loan is attached to the physical location of a home and not a person. The lender can recover the balance from the estate. Lenders can choose to sell or refinance the home to recover what is owed on the loan.

When a spouse also owns the home the surviving spouse is expected to continue making the payments. The home could also be passed onto heirs, which can be children or even other family members.  These family members can pay off the debt in a lump sum or they can take over the existing mortgage, making the monthly payments on the decedent’s behalf and avoiding foreclosure.

My family doesn’t want the house

In the situation where members of your family do not want the house, they can sell the home and use the profits to pay off the loan.  This would be beneficial if your family cannot afford the payments. Or if they just don’t want to continue living in the home for personal reasons. There is also the option of refinancing the house to find a better mortgage that’s suitable for them.

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mature couple working together

Planning Ahead

If you have property in your name, planning ahead is important. Understanding wills, mortgage insurance, and life insurance policies can protect your family and estate. 

Life insurance is an advantage because it supplies a stable income and those funds can be used as the beneficiaries see fit. In regard to your home life insurance will enable mortgage payments to a financial institution. A homeowner can also prepare by setting up automatic payments.

Mortgage insurance is an option some owners decide to purchase. Financial experts may advise against this option because the more paid on the mortgage the less the entitlement becomes.  

Regardless of a homeowners financial situation or health it is always best to have a plan in place to protect your family. Determining what is to happen to your estate prior to your absence and making family members aware of this plan is a necessary part of home ownership.

Sinead Mulhern
Sinead Mulhern