No one wants to think about one of their loved ones passing away. But if you’re going to need a co-signer on your mortgage, or you want to be a co-signer on someone’s mortgage, it might be something you need to think about, especially if the co-signer is an older person. So, what does happen if the co-signer on your mortgage passes away? There are three likely scenarios that would follow.
One of those scenarios is that the mortgage will continue on as is, with the exception of course, that now the initial applicant is fully responsible for the loan, with no other person required to pay should the loan go into default. If that happens, foreclosure would ensue, just as with a mortgage that does not have a co-signer on it. No refinancing is needed and nothing needs to be done.
In the second scenario, some lenders may require the home to be refinanced. Refinancing could make the necessary changes to the holders of the mortgages, and the applicant may even be able to get a better deal (assuming that they have improved their credit history or made the necessary improvements in order to qualify for a better interest rate themselves.) Refinancing could also be done so that a private lender offers a private mortgage and then none of the other scenarios would come into play. A private mortgage could be one of the best options for many homeowners, as private lenders often look favourably upon those who already have equity in their home and have proven that they can and will make payments.
The last scenario is that the co-signer’s estate could still be held liable to pay off the mortgage should the initial applicant default. This is not an extremely common situation, but it is one that is a possibility. When this happens, the lender will try to obtain the funds from the executor of the will who has control over the person’s estate. The remainder of the mortgage would then simply be pulled from what was left on the estate.
As you can see, there are many scenarios that could play out should a co-signer on a mortgage pass away. When you are co-signing a mortgage, or having one co-signed for you, you need to carefully look over your mortgage documents and if you’re concerned, ask about what will happen should the co-signer pass away. It’s likely that nothing will change but if it does, it could have a serious impact on not just your financial future, but the rest of your family’s as well. ”
