What Happens To Your Mortgage When You Die?
Sorry, a morbid title and conversation but it is a very important need to know in the game of life so you and your family can be prepared. It is imperative that all parties on the title of a property understand the implications of having a mortgage when someone dies.
What happens to the debt?
In Canada, the mortgage is not attached to the person, it is attached to the property. The mortgage is not forgiven or go with you to the grave. When you die having mortgage debt, the debt must be repaid. Your estate will become responsible for paying all unpaid debts.
What type of tenancy can you have on title?
If you have a mortgage with another person (a spouse, co-buyer) and are listed as joint tenants, then you have equal interest in the property. If one of you dies, then the title is automatically transferred to the surviving joint tenant(s), tax-free.
If you have a mortgage with someone as tenants-in-common, each of you owns a share of the property that you can do with as you like, including selling it to someone else. If you are on the title as tenants-in-common and you die, then the beneficiary listed in your Will/estate will become the new owner of your part of the property as not the other tenant-in-common getting your portion.
No matter how it is registered, all title holders are responsible for ongoing monthly payments and/or full repayment of the mortgage debt.
What is Probate?
Probate is the legal process that validates your Will and grants the authority for your Executor to act. The Executor of your estate is tasked with paying whatever debt remains in your name and dividing up any assets amongst the beneficiaries named within the Will.
Do you have mortgage insurance?
A proper mortgage life insurance policy will pay off most, if not all, of your mortgage upon your death. There are many options, a group policy with the bank that holds your mortgage, private mortgage insurance, term policies, etc. This is a larger conversation and you should seek professional guidance from a reputable mortgage insurance advisor.
What should I do to prepare?
Have a Will. A Will allows you to determine who inherits your assets, namely your home(s) in this instance. But note, your mortgage must be paid first as the debt is secured to the property asset. This must be settled before they inherit the home.
Moreover, having a Will in place is imperative so your Executor will have authority to negotiate with your mortgage lender on your behalf. If you die without a Will/Executor, the court will appoint an administrator for your estate.
Tell your family where you keep records. The biggest frustration in attempting to settle an estate is locating all the records. Knowing what assets/debts there are, bank account numbers, policies in effect, insurance/mortgage representatives, etc. Having records – and sharing with those that will need to know – is a great gift.
Candace Perko,
Mortgage Broker
