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With escalating home prices in cities such as Toronto and Vancouver having a residual effect be felt across much of the country, many Canadians are looking at holding mortgages well into retirement with no hope of actually paying them out once Canada Pension and Old Age Security become the primary source of income.

An unexpected loss of a spouse or death of the sole remaining mortgage holder begs the question: what happens to my mortgage after death? Death is an eventuality for everyone, so it is important to understand the implications of having a mortgage when you die.

Mortgage obligation does end when you do

A mortgage is a secured debt that survives death so it remains with the home until the home is sold, refinanced or is paid out from a mortgage insurance or life insurance product. In effect it does not disappear when you die, someone has to pay it.

A problem I often see in absence of insurance is the ability of surviving family members to continue with mortgage obligations once the process of settling the estate begins. For example, in a situation where the sole remaining parent dies their bank account which has been used to pay the mortgage could be frozen until the estate is settled. Below offers some possible questions for the estate lawyer, executor and heirs of the estate:

Questions for those who remain

  • Who is stepping in to keep the mortgage current and avoid a potential power of sale situation until the property can be sold or refinanced?
  • What if the remaining heirs can’t afford to make the payments?
  • What if the mortgage comes up for renewal during the estate process?
  • What if heirs of the estate are not in a position to secure a new mortgage should the property be gifted to them in a will?
  • What if there are not sufficient assets remaining in the estate to pay out the mortgage once the estate is settled?
  • What if there are insufficient funds to pay the funeral costs, estate taxes or legal fees?

Plan to avoid added pain

The death of a spouse or parent is difficult enough without the burden of dealing with mortgage issues, so planning is critical. In life, prudent people prepare for the unexpected. Preparing a will and making provisions for the payment of a mortgage will keep your loved ones from being blindsided should the unfortunate occur.

Every situation is different, and we are happy to review with clients all the “what-if’s” that come with preparing a mortgage strategy.