What Happens to a Home Loan if the Borrower Dies?

If you have a home loan or are planning to take one, you must have certainly wondered what happens to home loan after death. It is an extremely important question to consider, despite being a gloomy one. Untimely demise of a home loan owner, not only leads to immense personal loss to the family but also can create financial stress. If the deceased had a home loan, then the financial complications can increase.

In a scenario, where the home loan borrower was the only earning member in the family, the family could be in deep trouble. Few questions like - Who will pay for the home loan after death? What if the family is not in a position to afford the home loan EMI? Will the house be taken away by the financer? - and so on, can be extremely daunting.

What happens when a borrower passes away untimely?

If a home loan borrower passes away during the loan tenure, the financier's first step will be to check if there was any insurance taken during application. Many lenders, such as SMFG Grihashakti offer applicants with insurance policies from reputed providers to take care of repayment in such situations. Thus, upon the death of the borrower, depending on the terms of the policy, the family can receive a lump sum amount (pre agreed upon or equal to the remaining outstanding principal amount) which can be used to repay the home loan. Thus, the family members of the deceased borrower can continue living in their home.

If such a policy was not taken, then the next step is to check for co-applicants. If the loan is jointly held, then the co-applicant has to continue the responsibility to repay the outstanding amount. In case the co-applicant cannot continue paying for the loan, then the lenders would reach out to the guarantors, or family members, or legal heirs. The financers would help the family of the deceased repay the loan by restructuring the terms if needed.

However, in a scenario in which nobody can pay off the loan, then the lenders have no choice but to repossess and sell the property after a reasonable notice period. The lender is compelled to ultimately sell the property, recover its losses and pay up their share in the profit to the heirs.

Does housing loan insurance help after borrowers’ death?

A home loan insurance plan is a type of plan under which insurers settle the outstanding home loan amount with lenders in unforeseen situations. Lenders certainly do not want their loans to turn into bad debts. So they encourage home loan borrowers to buy a home loan insurance policy along with the home loan. Home loan insurance covers the risk of a borrower dying due to natural causes. If a home loan insurance policy is bought along with the home loan, it can give tremendous relief to the family of the deceased. The way it operates is that Insurers directly pay the remaining loan amount to the financier and free the property for the family from all debts and monetary obligations. However, insurers lay some conditions regarding the types of deaths. The deceased should have died a natural death, which is caused by health-related issues and accidental death. Most insurers do not cover death caused by suicide, self-inflicted injuries, excessive use of alcohol, HIV/AIDS, or murder by a beneficiary.

Home loan provider, SMFG Grihashakti offers competitive home loan interest rates depending on the applicant’s eligibility and our policy at the time of loan application. Benefits like low interest rate and flexible repayment tenure up to 30 years help you in bringing down your EMI. Your home loan can be taken up to 90%* of the property value. SMFG Grihashakti is happy to be your partner in the home purchase journey with a host of benefits. Apply online today to know more.