What Happens to Home Loan if Owner Dies?

I’ve provided the key considerations and steps that are generally taken in situation

if home loan holder dies

.

If Person Dies What Happens to Home Loan?

Loan Repayment:

• If there is a co-applicant on the home loan, the responsibility for repaying the loan typically falls on the co-applicant. The co-applicant is equally liable for the debt.

• If there is no co-applicant, the legal heirs of the deceased borrower inherit the responsibility to repay the loan. The legal heirs might include the spouse, children, or other close relatives as per the succession laws applicable (Hindu Succession Act, Indian Succession Act, etc.).

Insurance Cover

• If the borrower had taken a home loan insurance policy (also known as Mortgage Redemption Insurance), the insurance cover would pay off the outstanding loan amount in the event of the borrower's death.

• This insurance provides financial relief to the family and ensures that they do not have to bear the burden of repaying the loan. If the borrower had a life insurance policy with adequate coverage, the proceeds from the policy can be used to repay the loan.

Bank's Procedure

The legal heirs or co-applicant must inform the bank about the death of the borrower as soon as possible and provide a copy of the death certificate. The bank may offer various options to the legal heirs, such as:

• The legal heirs can choose to repay the outstanding loan amount in a lump sum.

• The legal heirs can continue to pay the EMIs (Equated Monthly Installments) as per the existing loan agreement. In some cases, the bank might offer to restructure the loan to make it more manageable for the legal heirs.

Property Transfer

• The legal heirs need to get the property title transferred to their names. This involves legal procedures and documentation, including obtaining a succession certificate or probate, depending on whether the deceased had a will.

• Once the property is transferred, the home loan can also be transferred to the legal heirs, making them responsible for future payments.

Repossession and Sale

• If the legal heirs or co-applicant are unable or unwilling to repay the loan, the bank has the right to repossess the property under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002).

• The bank can auction the property to recover the outstanding loan amount. Any excess amount after settling the loan will be given to the legal heirs.

Practical Steps for Legal Heirs

• Gather all necessary documents, including the death certificate, home loan agreement, property documents, and any insurance policies. Consult with a legal advisor to understand the succession laws and the process of transferring property and loan responsibilities.

• Maintain open communication with the bank to explore the most feasible options for settling the loan.

This is all about what happens to home loan after death

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Terms of Home Loan Insurance in Case of Death 

What are the terms of home loan insurance in case of death? 

While purchasing a property all types of thoughts come to our mind. Since most of us purchase houses with the help of a home loan we always wonder what happens to home loan if owner dies. Does the bank sell the property leaving the family to struggle in distress? Well, let's discuss it and clear the doubt. When a homeowner dies the property is transferred to the legal heirs, if they can pay the EMI then everything is well and good. The bank also helps the family with different schemes.

• They increase the tenure so that the home loan can be paid completely.
• At times they decrease the EMI to lower the monthly burden of the family.
• Selling the property is the lender's last resort. In this condition whatever profit the property makes after the EMI is paid off is given back to the family.

Banks prefer homeowners to take home loan insurance since home loans can put the family of the owner at risk. We must remember that home loan insurance and home insurance are totally different schemes. The home loan insurance in case of death helps the family to pay off home loans in case the homeowner dies. But under conditions such as suicide, self-inflicted injuries, death due to consumption of alcohol, death occurring due to sexually transmitted diseases like HIV/AIDS,  or murder by a beneficiary you cannot avail of home loan insurance. Home loan insurance is available under conditions such as:

• Natural death
• Death caused by health-related issues
• Accidental death

The best way to stay out of this kind of trouble is to apply for a home loan with a co-applicant. It's easy to secure a home loan as a co-applicant as the bank prefers co-applicants while applying for a home loan. Banks would never want to sell a house as it creates distress to both the family and the bank. It affects the earnings of the banks so taking possession of the property is their last option. I hope you understand what are the terms of home loan insurance in case of death. Get home loans from NoBroker at the lowest interest. Check out your home loan eligibility through this, [widget_homeLoan_checkEligibility_form] Read more: What is property and casualty insurance? What does property insurance cover?