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Can I Leave Property in My Will If Mortgage is Owing?

By: Emma Eilbeck BA (hons) - Updated: 7 Mar 2017 | comments*Discuss
 
Mortgage Property Debt Payments Home

A mortgage is likely to be the biggest financial commitment you will make in your lifetime. On average you will be 60 years old before the mortgage is paid off in full and in some cases older. It is not surprising then that many people end their lives with a mortgage still outstanding.

Will The Debt Be Wiped Clean?

There is a misconception that if a property is left to somebody in a will then the mortgage will be wiped clean and the debt will not be passed down. Unfortunately mortgage lenders are not that generous and any mortgage that is outstanding will be passed down.

Can They Take On The Mortgage?

If you have left a property in your will that still has an outstanding mortgage it is not the case that the recipient will automatically assume responsibility for the payments and take on that debt. If there is only a small debt that is outstanding then this should not be a problem.

If there is a large mortgage still outstanding then a lender will want to check the person can afford the mortgage on the property and that they have enough money to make the monthly payments. Don’t worry though, if the lender thinks the payments are too much they will not repossess the property but they may suggest the person sells it to pay off the mortgage.

Will They Be Able To Sell the Property?

There should be no reason why the person you leave the property to cannot sell it to pay off the debt. As long as you have some equity in your property this should not be a problem. Leaving your home in your will may be a problem if your mortgage is more than the equity you have in your property, for example if you took out a 100% mortgage on your home and it has gone down in value, the the person would gain nothing from its sale and have to pay the remainder of the mortgage.

The Legalities of Leaving Your Mortgage

The mortgage lender will hold the title deeds to the property as security against the mortgage. It will not be until the mortgage is fully paid off that the deeds will be released to the person you left the mortgage to. If you have taken out life insurance there is a good chance that this will pay off any outstanding mortgage that is left in your will.

Some lenders will require that life insurance is taken out with the mortgage, if this is the case you will not need to worry about any outstanding mortgage if the worst were to happen, as the insurance would pay off the mortgage before the properly is handed down.

If You Jointly Own The Property

If you jointly own a property with somebody who is not your husband of wife or legal partner you do not have to necessarily leave them your half of the property. If you bought a property as part of a business deal and bought with a business acquaintance you can leave it to somebody else in your will. A lot however will depend on what type of mortgage you took out on the property.

If you bought the property as tenants in common, this means each of you owned a share of the property and you are free to leave your half to anybody you wish. If the business partner wants to buy that share of the property or prevent the other person from selling it, they will need to negotiate with the person who was left the property in the will.

If you bought as joint tenants and own the property together your share or the deceased’s share will pass on automatically to the co-owner.

If however there are debts elsewhere owed the administrator looking after the estate may chase the debts and order the sale of the property to pay for any debts that are outstanding, so it is a good idea to try and pay off these debts first.

Passing down your mortgage in your will can be a blessing and also a hindrance for the receiver, depending on how much is owed. It is a lovely gesture to pass on a mortgage that is nearly paid off or a home that has a lot of equity in. If however, you have a lot of debt in the property you may want to inform the person of your plans and instruct them that should anything happen to you they are free to sell the property to pay off any debts, this way they will not feel obliged to take on the mortgage.

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I share title to my home as tenants in common with my wife. There is a small mortgage still owing - less than £20k. There is also a second charge registered against the property to help support the required 'loan-to-value' terms of another lender in relation to a rental property whose value is insufficient to secure it's own mortgage. Even in a worst case scenario, there is still a substantial equity. I am in the process of drawing up my will and would like to leave my share of this equity in trust for the lifetime benefit of my wife and at her demise to my children from a previous marriage. Given the encumbrances noted above is there a mechanism that achieves this?
Triggers - 7-Mar-17 @ 6:26 PM
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