The maximum loan tenure that a bank can offer for a mortgage loan is 35 years. This is a long period of time and anything can happen within this period. What will happen if the homeowner dies, leaving the unsettled loan? What should the beneficiaries do?
Mortgage Insurance? (MRTA / MLTA?)
- Find out if there is a mortgage insurance assigned to the loans? Is the coverage enough to cover the outstanding loan?
- Or is there any trust being created to pay off the loans?
- Find out whether he/she has a valid Will.
- Who is named as the beneficiaries of the house?
- Is there a provision to pay off the loans using other assets? (Insurance? Cash?)
- If there is no will, all beneficiaries has to agree to appoint someone to be the administrator. Distribution will be following “Distribution Act”
At the meantime:
- It is advisable to for the beneficiaries who inherit the house to continue paying the loan repayment.
- Banks can auction the house if there is no one servicing the loan.
After Court Order (Grant of Probate / Letter of Administration)
- If there is any outstanding loan, the beneficiary/ies who inherits the house can just inform the bank and continue the repayment till it is fully settled.
- Otherwise, the said beneficiary/ies can do a refinancing on their own name to settle the existing loan.
- The ownership can only be transferred after the full settlement.
Plan ahead your own distribution
From experience, we found out that most people did not pay detailed attention to their outstanding loans and house distribution when they do their estate planning, causing difficulties and potential dispute among their family members.
Among the common issues like:
- Beneficiaries did not have the capability to take over the repayment.
- Has MRTA attached to loans, but with very short term. End up having a huge shortfall from what is being planned.
- Have personally taken up insurance policies for the purpose to settle debt, but did not make mention probably in the will.
- Include minor children as beneficiary, make it difficult and troublesome for spouse if he/she need to liquidate the house.
- Pass it directly to the children, when it is a own stay house and the spouse is still around.
- Equal share the house among adult children. Even when they have a few houses.
There are many details to look into when making your estate plan. Talk to a licensed and experienced financial adviser for personalized professional advice. He/she will be able to help you create a practical and applicable estate plan, at the same time minimizing the administrative cost, transfer cost and duty taxes.
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