What Happens to Your Home Mortgage When You Die?

Since most people purchase their homes when they're in their 20s and 30s, it should be no surprise that the majority of mortgage holders are relatively young and healthy. After all, most mortgages are designed to be paid off within 15 to 30 years of their issuance. Nevertheless, each passing year sees many thousands of American homeowners die with outstanding balances on their mortgages. If you're worried about suffering this fate or inheriting a mortgage from a recently-deceased relative, you should keep a few things in mind.

Assuming that you die with a portion of your mortgage's balance outstanding, it's unlikely that any of your family members will be obligated to make any direct payments on it. However, the responsibility for paying the remaining balance of the loan may devolve to the person who cosigned the loan with you. In most cases, this will be your surviving spouse. Since he or she will presumably continue to live in the house, this may not represent a serious burden. If you have a life insurance policy that pays out upon your death, your spouse may well use the proceeds to remain current on the mortgage or pay it off entirely. Likewise, your spouse may choose to sell the house in order to satisfy the outstanding debt.

If you're the sole signer of your mortgage, your mortgage lender may decide the fate of your home. While it's possible to ensure that the home remains in your family by bequeathing it to a willing heir in your will, many homeowners don't have heirs with the resources to continue making mortgage payments.

However, your home may remain in your family under certain circumstances. If your estate contains lots of liquid assets, your mortgage lender may "call due" your mortgage debt and use these assets to satisfy the balance on your loan. While this will significantly reduce the amount of money that your surviving spouse or heirs may keep, it will also ensure that your home remains out of the possession of the bank that issued your mortgage.

If your estate is too small to satisfy your mortgage debt, your home is liable to be foreclosed upon by your mortgage lender. The executor of your estate can stop this process at any time by finding a willing heir to step forward and make payments on your mortgage. If this doesn't happen, your home will probably be sold by your lender through a sheriff's auction.

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