Everything You need to Know about the Home Loan if the Borrower Dies
Apr 08, 2019 Home Loan
Taking a home loan and repaying the loan amount is a loan time commitment. The loan tenure can range anywhere between 10 to 30 years. But what will happen if the loan borrower dies in the middle of loan repayment? Will you lose the property ownership and will have to leave your house? How will you repay the EMI? What will the banks do?
There is a myth that the bank or the loan lending company will immediately auction your property to recover their loan amount.
This is not true. Banks go through a lot of trouble to assess if you are a fit candidate to give a loan or not. The banks are not always willing to sell your property and recover the loan amount. That is generally the last option they take after exhaustion every other option on their list.
There is a myth that the bank or the loan lending company will immediately auction your property to recover their loan amount.
This is not true. Banks go through a lot of trouble to assess if you are a fit candidate to give a loan or not. The banks are not always willing to sell your property and recover the loan amount. That is generally the last option they take after exhaustion every other option on their list.
Home loan insurance to the rescue
A lot of people believe that home loan insurance and property insurance is the same thing when they are not. The property insurance will help in case of any casualties like fire or natural calamity. But the home loan insurance will help you in this case. There are a lot of terms and conditions with which the home loan insurance works. It is better to learn all of them before you take one.
Home loan insurance will cover the entire outstanding loan amount, but it is necessary to keep in mind that the home loan insurance will not be applicable if the borrower dies a natural death or a suicide. Also, this only applies when the home loan was taken solely. If the home loan was taken jointly, the rest of the loan amount falls entirely on the surviving co-borrower.
Home loan insurance will cover the entire outstanding loan amount, but it is necessary to keep in mind that the home loan insurance will not be applicable if the borrower dies a natural death or a suicide. Also, this only applies when the home loan was taken solely. If the home loan was taken jointly, the rest of the loan amount falls entirely on the surviving co-borrower.
But what if there is no home insurance?
If there is no home loan insurance, then the entire home loan shifts on the co-borrower or the legal heir. The legal heir can settle the whole home loan amount once and for all, or they can shift the home loan in their name.
But if the legal heir is not able to repay the home loan, then the banks will have to take the property to the market and recover their losses. If the property resale fetches more money than the actual loan taken, then the difference of the amount is paid to the legal heir. But if resale of the property does not fetch the loan amount, then the legal heir is required to bridge the gap.
It is generally advised to clear it with your bank about the same before you take the home loan and mention what has been agreed upon, clearly in the sales deed.
But if the legal heir is not able to repay the home loan, then the banks will have to take the property to the market and recover their losses. If the property resale fetches more money than the actual loan taken, then the difference of the amount is paid to the legal heir. But if resale of the property does not fetch the loan amount, then the legal heir is required to bridge the gap.
It is generally advised to clear it with your bank about the same before you take the home loan and mention what has been agreed upon, clearly in the sales deed.
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