We hope you pay your mortgage during your lifetime, but death is an unfortunate reality that is inevitable and unpredictable. Some people pass away due to multiple reasons before fully paying off their property loan.
Does the mortgage end after your death?
The short answer is NO. In Australia, a home loan is a legal debt, and when you pass away, the mortgage becomes part of your estate. Let’s understand this in detail!
Transfer of Mortgage to Estate
When there are no plans in place, and you die suddenly, the remaining debt or home loan is paid from your estate. If it lacks sufficient funds to cover the full amount of your mortgage, the property may be sold to settle the debt. Or, the debt is transferred to whoever inherits your house.
Who Is Legally Responsible for the Mortgage After You Pass Away?
Who becomes responsible for paying the debt after your demise depends on how your property and loans are structured. Here are two possibilities:
Co-owner
If you are a co-owner of property, then in case of your demise, the surviving owner will be responsible for the pending debt. In most cases, the co-owner is your spouse or partner, and the property automatically transfers to a surviving partner when you die. If the surviving owner cannot afford the remaining mortgage, they must sell the property to pay off the debt.
Note: The legislation regarding mortgage transferability varies from state to state in Australia. There can be exemptions under certain circumstances.
Guarantor
Some people use a guarantor when buying a property in Australia to qualify for a mortgage. If you have opted for a guarantor loan, then one of his properties will be used as collateral for the mortgage after your death. It means the bank will seek payment from your guarantor. The bank may even sell your property if the guarantor does not have the funds to repay your debt.
What Role Will Play in Your Mortgage Payments?
Having a will: A will ensures that all the assets and responsibilities from your estate go to the right person you trust. So, when you die, that person will be legally responsible for all your debts and assets. It decides who will inherit your home.
Not having a will: When there is no will, the property goes to your closest living relative, such as your child, spouse, parent, or another close family member. But it can become more complex when two or more people start claiming property rights.
How To Prepare Your Mortgage For Unexpected Death
The first thing that you need to do right away when you buy a property is to draft a will. This legal document states how you want your estate distributed after your death. You can discuss it with your spouse or close ones, so they are aware of your decision.
Another important thing that you should consider is to opt for a life cover. Life insurance can help cover your mortgage and other debts after your death. Some insurance providers pay out a lump sum, which your family can use to pay off the mortgage.
If you need more guidance on mortgage planning, property loans, or repayments, you can join our community group. Here you can connect to the best mortgage brokers to plan your mortgage payments, making it easy to pay for your family after your demise.
