Dealing with the loss of a spouse or partner is always difficult and unfortunately, alongside the emotional strain come practical considerations, including dealing with the loved one’s finances.
With more mortgage lenders prepared to lend to people in their 50s, 60s and decades beyond, increasing numbers of older borrowers are going to need to understand the implications of having a mortgaged home when their spouse or partner dies.
This article, the latest in our later life mortgages and borrowing series, covers the issues surrounding a mortgage when a spouse or partner dies.
Many people have concerns about telling their mortgage provider about the death of a spouse or partner but they need not worry. Mortgage providers have a great deal of experience in helping people in this situation and so will be extremely sympathetic. Without alerting the mortgage provider to their loss, the lender will not know about the death and will therefore be unable to provide support.
The first step is for the surviving partner to let their mortgage provider know. To do this, they will need a certified copy of the death certificate and if they are not named on the mortgage documents, they may also need to show ID for themselves. This will need to be taken into a branch, posted, or some lenders may accept a digital copy – either a scan or photograph.
Life insurance and trusts
Whether or not the mortgage is held in single or joint names, many people choose to have life insurance arrangements to ensure that should they die, their spouse or partner can pay off the remaining mortgage balance and stay within their home. Similarly, the deceased may also have other investments and savings which their partner could choose to use to settle the mortgage debt.
The advantage of putting a life insurance policy into a trust is that any payout doesn’t form part of the deceased’s estate for inheritance tax purposes. Therefore, the partner will be able to access the proceeds almost immediately, allowing them to rapidly settle the mortgage debt and other outstanding loans or credit card balances.
Mortgage policy in a sole name
If the deceased held a mortgage in their sole name, the mortgage will need to be settled. However, many lenders will give the spouse or partner as much assistance as they possibly can at this difficult time and may be able to suspend payments on the account for a few months to allow the surviving partner to organise their finances. When payments are suspended it is important to understand that interest will still accrue on the balance.
After this time, if there are insufficient funds to clear the balance, the remaining partner may need to sell the property or could choose to take out a new mortgage in their own name. This would be an entirely new mortgage and the applicant would need to ensure they have sufficient funds to pass income and affordability assessments. It is not possible to simply take over the existing mortgage of a deceased individual when the mortgage was originally held in a single name.
A note on joint tenants vs tenants-in-common
Anyone who either fully or partly owns property with someone else, needs to be aware of their ownership status in the eyes of the law.
If the partners are joint tenants then, at the spouse’s time of death, the surviving party will automatically inherit their partner’s share of the property. However, if a tenants-in-common agreement is in place, the spouse’s proportion of the property is passed on in accordance with the deceased’s will via the process of probate.
However, it is important to note that when a property is jointly mortgaged, regardless of whether it is held as joint tenants or tenants-in-common, all parties named on the mortgage are jointly responsible for the mortgage debt, even if one person stops contributing.
The www.gov.uk website provides some useful information about joint tenancy and tenancy-in-common.
Joint mortgage holders
When one spouse passes away, the mortgage will continue in the name of the remaining party on the existing terms, interest rate and with the same required monthly payment amount.
If the surviving party is going to find it difficult to maintain their monthly payments, they can speak to their mortgage provider to discuss whether they could adjust their mortgage to make it more affordable – this could include extending the term, switching interest rate or repayment product type. Depending on what is agreed and the terms of the individual provider, this may or may not be considered a new mortgage application. Mortgage holders who keep up their mortgage payments and have not been in breach of any other terms of their mortgage will be in the best position to negotiate.
As well as alerting the mortgage provider to the loss of a mortgage holder, there are other organisations that can provide counselling and support at this difficult time. A comprehensive list can be found by scrolling towards the bottom of our bereavement page.
Despite the trauma of losing a spouse or partner, it is vitally important to communicate with a mortgage lender as soon as the deceased’s death certificate becomes available. And secondly, ensure that monthly mortgage payments are maintained whilst the surviving partner reviews their finances and makes plans for the future.