Home loans are one of the most commonly used methods to buy a property as they provide a longer repayment tenure. Ramesh had taken a home loan of Rs 50 lakh for 18 years. Four years had already passed. He had prepaid around Rs 20 lakh and had a pending of Rs 30 lakh to be paid in 14 years when he suddenly passed away. What happens to the outstanding home loan when the borrower dies unexpectedly? Will the family be responsible for repayment? Know what happens in this guide.
What is a home loan?
An amount that a home buyer borrows from a bank or a non-banking financial company to buy a new or a resale house, construct a house, renovate or extend an existing house. The money borrowed as home loan is lent at a specific interest rate that has to be paid within a set duration by way of small installments known as EMIs.
What happens if a home loan borrower dies untimely?
- When a home loan buyer dies before repaying the entire loan, the home loan provider looks for the co-applicant of the home loan.
- If a joint home loan has been taken, then the co-applicant will be responsible for repaying the rest of the home loan.
- In case the co-applicant is not financially stable to repay the home loan lender will approach the guarantors, family members and legal heirs.
How to repay the home loan of the deceased person?
- In case of the death of the family member who took out a home loan, one should understand from the home loan provider on the remaining home loan amount and the years remaining to pay the loan.
- In case the immediate family members do not have the means to repay the home loan immediately, then it has to be communicated to the home loan provider. They may consider it and restructure the repayment plan. In this, the options such as EMI moratorium, rescheduling of EMI payments or extension of the payment terms.
- The family can also negotiate with the money lender on the basis of the situation and agree to pay a lump sum and close the loan. For instance if a person had an outstanding loan of Rs 15 lakh and dies, the person who is responsible to pay the dues can negotiate to pay the entire amount with a smaller sum – say Rs 12 lakh and close the loan altogether.
What happens if no one steps to pay the home loan?
In an unfortunate circumstance of no one stepping to pay the home loan, the home loan lender has the right to seize the property and auction it. However, if any one from the borrower’s family comes forward and takes guarantee to pay the home loan, the property is returned to the borrower’s family.
Role of housing loan insurance
The role of housing loan insurance is big in case of incidents of loss of life of a person who has availed the home loan. In this way, he along with paying the loan, also saves the pain for people who are left behind. However, if you avail of the housing loan insurance, one has to pay both EMI and premium for the housing loan insurance.
There are two types of housing loan insurance that one can avail of:
- Home insurance: In this, all the outstanding home loan amount will be paid directly to the home loan lender. In this, the premium to be paid depends upon age, any existing medical condition, the home loan amount borrowed and the occupation of the home loan borrower.
- Term Insurance: In this, the insurance amount is paid to the nominee who will pay off the home loan that was taken for the property. In case the policy holder lives more than the policy period, then the insurance on the policy will expire. These are comparatively lesser in costs as compared to other types of insurances as they don’t accumulate cash value and the premium is the same throughout.
Housing.com POV
It is very true that home loans help in buying a property but an equally important thing to understand is to gauge all kinds of situations that can happen when one takes a home loan. It is a good idea to be very prudent in the home loan that you are taking on the basis of savings, number of people who are working and contributing to the home loan etc. Because in case of an unfortunate incident, the immediate family which is going through grief should not be put in a position where he is hounded by money lenders. It is always recommended to be prepared. In addition to planning the amount to be taken as a home loan, it’s also recommended to opt for a home loan insurance that will take care of the uncertainties.
FAQs
What happens to a home loan if the borrower dies without a co-applicant?
If there is no co-applicant, the lender may approach the guarantors, family members, or legal heirs. If no one steps forward, the lender has the right to seize and auction the property.
Can the family restructure the home loan after the borrower’s death?
Yes. The family can request the lender to restructure the repayment plan, including EMI moratorium, rescheduling of EMIs, or extension of the loan tenure, depending on their financial situation.
How does home loan insurance protect the borrower’s family?
Home loan insurance pays off the outstanding loan in case of the borrower’s untimely death. Depending on the type (home insurance or term insurance), it either pays the lender directly or the nominee who can settle the loan, reducing financial burden on the family.
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