Did you know! the power of a home loan contract is often stronger than the assets of the borrower? Whatever assets the borrower acquired with their home loan will stay with the lender, often making it hard for the borrower’s legal heirs to collect upon their death. In this post, we explore what you can do to minimize the hardship for your legal heirs.
Who is responsible for repaying the home loan?
A popular topic is what a borrower of a Home Loan goes through with the repayment. The major concern for borrowers repaying their home loans is that what if the borrower dies during the repayment period, who is liable to repay the home loan? The Legal heirs or the borrowers’ spouse?
In the event of a borrower’s death, his/her legal heir must report it to the mortgage lender/ Bank and submit a copy of their death certificate. The primary responsibility for repaying the home loan after the borrower’s death rests with the co-borrower if any. Co-borrowers are required to provide monthly income information and other details to the lender Bank. The lender will then assess if the co-borrower is financially capable of paying the entire home loan. In case the co-borrower does not want to repay the loan, he can contact the lender bank and request a waiver of liability by submitting it in writing.
Now, who will pay the home loan? If the co-borrower has rescued himself/herself then the liability falls on the legal heirs. Bank would transfer the loan account to legal heirs after evaluating their credit profile and repayment capability.
What if legal heirs are facing difficulties in repaying loans? Will the property be auctioned?
Legal heirs who are having difficulty in repaying a loan and do not want the property to be auctioned by the bank then they will have to try to renegotiate the terms of the loan with the lender bank. A Legal heir may be able to negotiate easier repayment terms with the lender. He/She may offer certain guarantees, such as certain assets or other properties he owns, to the lender Bank. He may also provide an acceptable level of security from a third party willing to provide financial assistance.
All the above points might help legal heirs who are looking for help and don’t want the property to be auctioned. But what if the above solution doesn’t work? Well if the above solutions don’t work then the lender will repossess the property and the property will be open for the lender’s bank to be auctioned.
Is Auctioning the property, the End Game?
Like we as a home loan borrowers have some legal rights, so do lender banks and in case the legal heirs are unable to repay the loan amount, then to restore its rights lender bank can auction the property. Lenders can take possession of the home under Sarfaesi law. They can then auction the property to recover the dues. But even the lender bank doesn’t like the idea of repossession and auction. It is however a last resort and lenders’ banks always try to find a solution before resorting to it. And, if they have to auction the property then the proceeds from the sale are first used to recover the outstanding amount owed by the lender bank. In case there is excess money left after recovering the outstanding amount, that will be returned back to the legal heirs.
What is the best thing a home loan borrower can do?
At first, glance, buying an additional insurance policy sounds like a prudent move for home loan borrowers. Many home loan borrowers will only consider buying life insurance once they’re in their late 60s, after realizing that their life expectancy needs more protection. At this point, it’s less about life insurance and more about the death benefit and what the legal heir would need to claim the insurance for them. Home loan borrowers are legally obligated to purchase additional life insurance protection for their families during the term of their mortgage agreement. The additional life insurance obtained by mortgagors is sold by either the bank or their legal representatives for up to five years. As a home loan borrower, we recommend you purchase additional insurance to minimize difficulties for legal heirs.