Debt write off on death?

LadyLucinda

Is this a term in an average loan/mortgage? Heard about this today and never knew it existed

athtrasna

LadyLucinda wrote: »

Is this a term in an average loan/mortgage? Heard about this today and never knew it existed

Certainly in the case of a mortgage, insurance to cover death during the term of the loan is required to be taken out concurrently with the loan.

LadyLucinda

athtrasna wrote: »

Certainly in the case of a mortgage, insurance to cover death during the term of the loan is required to be taken out concurrently with the loan.

Even if its a joint mortgage?

athtrasna

LadyLucinda wrote: »

Even if its a joint mortgage?

Both parties must have insurance.

coylemj

Loans with credit unions are often covered by a death benefit though I believe this facility tapers down to zero as you age i.e. it's probably 100% covered for younger people but not so if you're older, don't know the exact terms and they may vary from CU to CU.


Bank loans (other than mortgages) are not covered, your estate still owes the money.

Mortgages are a special case because the loan is taken out and secured on a house. No lender wants to be throwing a widow and children out onto the street because there's no income to pay the mortgage so every mortgage has to have a mortgage protection policy whereby if the person with the principal income dies, the (life) policy pays off the loan.

Glenbhoy

coylemj wrote: »

Loans with credit unions are often covered by a death benefit though I believe this facility tapers down to zero as you age i.e. it's probably 100% covered for younger people but not so if you're older, don't know the exact terms and they may vary from CU to CU.


Bank loans (other than mortgages) are not covered, your estate still owes the money.

Mortgages are a special case because the loan is taken out and secured on a house. No lender wants to be throwing a widow and children out onto the street because there's no income to pay the mortgage so every mortgage has to have a mortgage protection policy whereby if the person with the principal income dies, the (life) policy pays off the loan.

It's normal that mortgagees have mortgage protection cover, but not an absolute requirement, the requirement can occasionally be waived.

My experience of these derogations is confined to residential owner occupier mortgages, what's the situation with regard to buy to let mortgages, I would presume that such insurance cover is not necessarily required?

Rob Thomas

It was only a requirement for a PDH mortgage. Life cover would be recommended by not insisted upon for investment mortgages.

With a PDH you had to have it unless it was cost prohibitive due to a medical reason or otherwise.

JigglyMcJabs

athtrasna wrote: »

Both parties must have insurance.

Not always the case unfortunately, I've seen mortgage documentation with the insurance details section with a line through it, this was back in the good old Celtics tiger days, usually when the applicant was asset rich and a poor insurance risk. It's unusual, but it has happened.

OP, whoever the executor is should request copies of the mortgage documents, if there was insurance cover it will be mentioned there.

2forjoy

athtrasna wrote: »

Both parties must have insurance.

what happens if only one person has insurance because one policy has expired ?

Pat Mustard

LadyLucinda wrote: »

Is this a term in an average loan/mortgage? Heard about this today and never knew it existed

I've never seen or heard of such a term in a mortgage. I doubt that a bank would choose to draft its mortgage conditions in this way because if it did, said bank would lose out, ultimately.

However, it is possible for a person who takes out a mortgage (mortgagor) to take out a mortgage protection policy, which will discharge the mortgage upon the death of the said mortgagor.

GerardKeating

LadyLucinda wrote: »

Is this a term in an average loan/mortgage? Heard about this today and never knew it existed

The debt is not written off, but the terms of the mortgage contract require that an insurance policy exists to pay off the mortgage in the event of the death of the home owner.

Sometimes such policies lapse, are cancelled, and the banks could (in theory) take the house to settle the debt.

myshirt

Iv seen this work out very bad, where a widow was left with a large mortgage and no earner in the house to pay. Now while some forbearance may be afforded, I have certainly never seen a write off.