What would happen with your mortgage if you passed away unexpectedly?
A home mortgage is almost always a big debt that takes years or decades to repay. Many Australians spend a good part of their life repaying it. Unfortunately, some may pass away before paying it off.
This article provides some information you might find useful. However, you should not treat this as legal or tax advice, and it’s always best to seek professional advice before making decisions about will and estate matters.
What happens if there is no beneficiary?
If you haven’t got a valid will, your property will be divided among your relatives when you die. Inheritance laws vary from state to state – however, there is a hierarchy that applies so that your estate will be divided up among the surviving immediate family. If there is no such immediate family, then typically, the estate will be granted to other family members.
What happens if there is a beneficiary?
If you have a beneficiary or beneficiaries in your will, then unless there is a successful challenge to the bequest, the beneficiaries will inherit your assets when you die in accordance with the wishes in your will. In a sense, a beneficiary of an asset also inherits any debts tied to it. So, if you name someone as a beneficiary of your home and you haven’t paid off the mortgage, the beneficiary will often have to take care of it.
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Can the lender request full payment?
If you’re the sole borrower under the mortgage, the lender might ask the beneficiary who inherits your house to pay the mortgage in full. Here’s what typically happens in that case.
The best-case scenario is that there are enough assets to allow the beneficiary or the estate to pay off the debt. In that case, they can inherit the property in full after the bank gets all its money back. In some cases, the bank assesses the beneficiary’s capacity to service the repayments and allows them to take out a new mortgage.
If there are not enough assets left to the beneficiary to pay the debt, and if the beneficiary is unable to service the mortgage, then they might have to sell the house.
What if I hold the debt jointly with a partner?
Most people in Australia co-sign the mortgage contract with their spouse and own the home as joint tenants. If this is the case, the remaining spouse assumes the mortgage.
Your spouse will not have to sell the house when you die as long as they can meet the mortgage repayments. They will also become the sole owner of the property, subject to the mortgage.
What if there is a guarantor on the mortgage?
Some people need a guarantor to qualify for a mortgage. If you die, unless someone else is meeting the mortgage repayments, the lender will ask the guarantor of your loan to pay the mortgage.
How can Life Insurance help?
If you worry that your partner or other beneficiary might be unable to pay off the mortgage if you passed away unexpectedly, consider taking out life insurance cover, which pays a lump sum upon your death.
For the policy, you will name a beneficiary who will get a lump-sum payout. If the beneficiary of your policy inherits the home, or if your spouse is responsible for the remaining share of the mortgage where the property was held with them in a joint tenancy, and they are beneficiary of your life insurance policy, then they can use the life insurance proceeds towards repaying any outstanding mortgage.
How do I start?
To find out more, you may wish to consider NobleOak, an Australian-based Life Insurer with a 145-year heritage. NobleOak has a rich history built on a desire to help Australians and their families.
Call NobleOak’s friendly representatives on 1300 014 494. Mention ‘Eternity news’ and if you decide to get cover, you will get your first month free (valid until 30 June 2023)*. You can also click here for an online quote.
This article is a sponsored content piece by NobleOak Life Limited
Please note, cover is available to Australian residents only. The TMD for NobleOak’s Premium Life Direct insurance is available here.
NobleOak Life Limited issues these products. ABN 85 087 648 708 AFSL No. 247302. This information is of a general nature only and does not take into consideration your objectives, financial situation or needs. Always consider the Product Disclosure Statement (PDS) to see if the product is right for you.
*First month free – Apply for one or more Life Insurance cover types available under Premium Life Direct, and if the cover is issued, you’ll not start paying premiums until one month after the commencement date of the cover. This offer is available if you apply for cover by 30/06/2023. This applies to any one or more of these insurance cover types you take out – Life Insurance, Income Protection Insurance, Total and Permanent Disablement (TPD) Insurance or Trauma Insurance cover. The offer(s) are available only for new customers and can be used once. Not able to be used in conjunction with another advertised offer.