A mortgage is typically the biggest debt that most people have, and the thought of leaving this debt to someone else after you die may be disconcerting. When you die, your beneficiaries can choose between several options to handle the debt. Your loved ones will not be responsible for the debt, but they can take it over if they choose.
Joint Ownership of House
If you own the house jointly with another individual, it can pass on to that person without any changes being made. For example, if you own the house jointly with your spouse or with an adult child, it can pass on to them without any problems. At that point, the joint owner will become the sole person responsible for the mortgage. If you are worried about burdening a spouse with a mortgage payment, you can buy life insurance to pay for the mortgage debt.
Pay From Estate
When you die without a trust set up, your assets will have to go through probate before they can be distributed to your beneficiaries. During the probate process, all of your creditors can also make claims to be paid. At that point, your mortgage holder can request to be paid out of the assets of the estate. If the estate has enough liquid assets, the executor of the estate can simply pay off the mortgage.
Selling the House
In some cases, selling the house might make the most sense. If you do not own the house jointly with anyone and your beneficiaries do not necessarily want to take on the burden of the mortgage payment, they can sell the house. The proceeds from the sale can pay off the mortgage, and any extra money is divided among the beneficiaries of the estate. If the house does not sell, the lender may foreclose on it.
Refinancing
If you have adult children that would like to keep the house, another option to consider is refinancing the property. Your children can decide to refinance the mortgage debt and move the property into their names. When this happens, they could potentially take money out of the equity of the house. They could also just take out a mortgage for the amount that is owed on the property and keep the equity in the home.
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