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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jun 27, 2013

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Yes, you have to pay the mortgage loan payments on a house that you inherited if it has an outstanding home loan — provided you want to keep it. However, in some circumstances, beneficiaries do not wish to keep their newly inherited homes, in which case it is perfectly legal to not make payments.

To clarify these situations, spoke with several experts in the home loan industry.

Ryan Glover, Chief Investment Officer for Tarheel Advisors, told that when money is loaned against property such as a house, there is a lien placed against the property.

“If the owner of the property, or subsequent owners/beneficiaries stop making payments, then the property will be subject to be foreclosed or repossessed by the lender who has the lien against the property,” he said. “If the property was financed without using a lien then it is much more difficult for the lender to recapture that property should future beneficiaries stop making payments on it.”

Ryan S. Himmel, President and CEO of BIDaWIZ Inc., explained to that anyone inheriting a home faces a number of options. They can:

  • Sell the home immediately
  • Allow the lender to take it
  • Keep the property by making home loan payments

But Himmel issued a warning about inheriting an underwater mortgage.

“If the value of the home is less than the mortgage, [beneficiaries] can utilize other assets in the
estate to pay off the mortgage,” he said.

Himmel recommends having a property reappraised upon inheriting it to determine its worth and to make sure that any outstanding mortgage is affordable. Beneficiaries have to send the mortgage loan lender a copy of the original borrower’s death certificate in order to inform lenders that they will be taking over mortgage loan payments.

However, should the property be underwater, Himmel recommends beneficiaries simply walk away from it.

“You can let the property go into foreclosure or short sale and let it become the responsibility of the estate,” he said. “However, if there are several assets involved in the estate that you want to protect, you need to think twice about walking away from the property. The creditors can go after other assets in the estate to satisfy the mortgage.”

For those curious about whether or not they will still retain the same interest rate and scheduled duration as the original owners, they can rest assured.

“If the beneficiary of the estate would like to keep the home, the mortgage will stay in effect under its current terms even though the home has passed from one person to another.”

But if those terms aren’t favorable, you can always try to refinance your home loan. Refinancing allows borrowers the opportunity to get a better interest rate and term on their mortgage agreements.