In this scenario, the debt is evenly divided among the heirs. The bank cannot renegotiate the terms unless the partition is changed, but if the heirs alter the distribution, the bank will be able to change the terms.

Author: Iago Eguileta
Source: El Economista

When a person who has not finished paying off their mortgage dies, their family members have the option to acquire the property, but they will also have to assume the outstanding debt. In such cases, a procedure must be followed to transfer the property, which is not complex; it only requires changing the contract and noting that the remaining debt is now under the names of the family members who have decided to take on the obligation.

According to the Bank of Spain, when spouses accept the inheritance, a community of goods is created, which includes the property until an agreement is reached on the division of assets.

Rights for Heirs

Heirs not only inherit the property but also have the right to review the deceased’s financial situation. This includes checking the balances of all their accounts, transactions made in their last years (even those after death), or obtaining copies of contracts they had.

Additionally, upon death, the property and the remaining mortgage loan are divided equally among the heirs. However, there is the possibility that the heirs agree on variations, such as one person taking on both the mortgage payments and the property.

Heirs will also need to pay inheritance tax, which varies by region. The process of loan subrogation will take place, which involves modifying the loan’s ownership. According to the bank, this process, which records the names of the new holders, will involve a fee ranging from 0.1% to 1% of the total loan amount.

When the Mortgage Does Not Change

The Bank of Spain also explains that, when someone with an outstanding mortgage dies, by law, the remaining loan and the property are equally divided among the heirs. The bank cannot initially change any conditions of the contract, so monthly payments, the loan term, and interest rates remain the same.

The bank cannot use this situation to demand additional loan guarantees, such as new collateral. It also cannot force the new holder to take out additional secondary products, such as home insurance or payroll accounts.

If, as previously mentioned, one of the deceased’s heirs takes on the rights and obligations after an agreement with the others, they will no longer be entitled to keep the mortgage under the same conditions. In this case, renegotiation with the bank will be necessary. The bank may require new terms, such as increased collateral, especially if the heir has a lower financial capacity than the deceased.