Here's what happens to your mortgage debt when you die (2024)

Americans carry $12.35 trillion in housing debt, according to a report by the Federal Reserve Bank of New York —a steep number that makes up 72.4% of all consumer debt in the country. With so much debt tied up in decades-long mortgages, unfortunately, many borrowers pass away before getting the deed to their house.

CNBC Select explains what happens when someone dies with unpaid mortgage debt, whether heirs are responsible for the remaining payments and how can borrowers prepare ahead of time to make the process easier for loved ones.

• What happens to your mortgage when you die?
• How do I assume the mortgage on an inherited house?
• How to prepare
• Bottom line

Mortgage debt does not vanish when a homeowner dies.When someone passes away, their assets and liabilities, including any mortgage, are entered into an estate.

If the mortgage had a co-signer, then the surviving borrower is required to continue making payments. This is the only situation in which a certain survivor is required to make mortgage payments.

If the surviving family wishes to keep the house, they will be required to continue making payments after transferring ownership of the loan. If the surviving family wishes to sell the home, they will only have to make payments until the home is sold.

If nobody makes mortgage payments after a homeowner dies, then the creditor will simply foreclose the home. However, if an heir is named who does not sell the house or make payments, a transfer of ownership could still be initiated by the mortgage servicer, and the foreclosure could severely damage the non-paying heir's credit.

To keep an eye on your credit, consider using a service likeExperian free credit monitoring, which will alert you of any delinquent accounts in your name.

What happens to a mortgage when someone dies without a will?

When someone dies without a will or trust, the courts will appoint an executor of the estate, usually a close living relative, to distribute their assets and liabilities. Unless the home has a transfer-on-death deed or is held in a trust, then the mortgage is entered into the unsettled estate. The executor of the estate might use outstanding assets to make mortgage payments until the home is sold or the heir is settled.

What happens to a mortgage when it's divided between multiple heirs?

Oftentimes, a mortgage must be divided among multiple heirs. This situation yields two potential outcomes: the heirs agree on the next course of action, or they don't.

If all heirs wish to assume the mortgage, then they will become co-borrowers and continue payments. If all heirs wish to sell the property, they can do so and use the proceeds to pay off the remaining mortgage.

If the heirs are not so single-minded, however, there are a few options. If there are multiple heirs to the home but only one wishes to keep the home, then he or she can "buy out" the other heirs.

Otherwise, if the group of heirs cannot come to a consensus, the courts may require a sale of the property, using the proceeds to pay off the mortgage's lender.

What happens to a reverse mortgage when a borrower dies?

There are fewer possibilities when someone with an outstanding reverse mortgage dies. The surviving heirs must pay off the entire loan balance or turn over the deed to the lender.

What happens when a surviving spouse is not listed on the mortgage?

If a couple took out a mortgage together, also known as "tenancy by the entirety," then the surviving spouse inherits the property automatically and must continue making mortgage payments to keep the house. But, if the surviving spouse is not listed on the mortgage, there must be a transfer of ownership in order for the surviving spouse to keep the house.

Once ownership is transferred to a surviving spouse or any other heir, it is up to them to continue making payments until they decide what to do with the house.

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The first step to assuming a mortgage is to notify the mortgage lender of the borrower's death as soon as possible. Survivors should also tell the lender who has legally inherited the house, and the lender will require legal documentation of each.

After notifying a lender, surviving co-signers automatically assume responsibility for the mortgage with minimal headache.

If the heir to the home is not a co-signer on the mortgage though, the heir will have to work with the mortgage servicer to initiate a transfer of ownership. If you have a death certificate and proof of inheritance, like a will, this should be a relatively simple process.

The heir will continue making payments wherever the original homeowner left off in order to prevent foreclosure. Payments may be required even before the mortgage account is legally assumed by the heir.

If the deceased listed beneficiaries on their bank accounts (which most checking accounts require or strongly suggest when the account is opened), then heirs can access the funds within days of providing the bank with a death certificate. This allows heirs to use assets left by the deceased fairly quickly to make mortgage payments (and settle other unpaid liabilities).

If an heir wishes to remain in the home but cannot afford the monthly mortgage payments, refinancing is usually an option. This can modify the loan into one with a longer term or a lower interest rate.

CNBC Select reviewed dozens of mortgage refinance lenders and named Rocket Mortgage Refinance as a top pick for maximizing the equity you can cash out of your home. According to its website, Rocket Mortgage allows refinancers with a minimum FICO score of 620 to cash out 100% of their equity.

It's emotionally difficult to lose a loved one. There's no need for it to be financially difficult too. By planning ahead, homeowners (and anyone else) can make the process easier for those they leave behind.

Mortgage protection insurance

Mortgage protection insurance is essentially life insurance for your home. If you die with unpaid mortgage debts, your insurer will make payments directly to your lender to cover some or all of your remaining loan. These policies often carry high premiums, though, and are usually unavailable to anyone who closed on their home more than a few years ago.

A typical life insurance policy offers a similar payout, but it leaves money flexible for your beneficiaries to use however they see fit — such as to make mortgage payments — whereas mortgage protection insurance is paid directly to your mortgage lender.

Life insurance

Life insurance can pay off debt and protect your loved ones financially should you die unexpectedly. There are different types of life insurance, such as term life insurance, which expires after a certain number of years and charges lower premiums. Meanwhile, whole and universal life insurance cover you forever and can accrue greater value over time.

After reviewing dozens of life insurance companies, Northwestern Mutual stood out to CNBC Select for its wide variety of plans. The 165-year-old company is the largest issuer of life insurance policies in the U.S. according to the National Association of Insurance Commissioners.

Estate planning

In your will, you can dictate who receives your home (and subsequently your mortgage). If you don't have a will, the distribution of your home (and the rest of your property), is left up to an executor appointed by the state. If you wish to bequeath anything to anyone who is not a legal relative, you'll need an enforceable will for them to inherit any of your property legally.

If you don't yet have a will, you should seriously consider creating one. Sure, it's morbid to think about, but having a will makes the transfer of property immensely easier for loved ones to distribute responsibilities and assets. Further, it makes the process cheaper, allowing your heirs to avoid legal fees on property transfers.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance guide is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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