Home Loan After Borrower's Demise: Solutions and Family Options

28 OCTOBER, 2021

Mr. Gupta had availed a home loan from a leading bank to purchase his dream home. He had researched extensively and had opted for a loan that he can comfortably repay with his salary. However, Covid- 19 had other plans for the family. With a fatal illness, Mr. Gupta passed soon after availing the loan, leaving a huge home loan amount behind. Now his wife, who was already grieving the loss of her husband, is clueless about the home loan.

The demise of the borrower of a home loan can be a hard blow to the family. However, knowing the further processing of the loan can help them manage the debt. Read on to know what happens when the borrower of a home loan passes away.

Who Will Pay the Loan?

• The home loan insurance company settles the loan amount with the lender. In the absence of insurance, the lender looks for other options.
• If the loan was taken jointly, the onus of repaying the loan falls on the co-borrower.
• If there is a guarantor, they will have to pay the loan.
• In the absence of these two, the legal heirs are asked to repay the loan.
• In the event of the borrower's death, the lender creates a new loan agreement replacing the deceased borrower’s name with the guarantor, co-owner or legal heir, depending on who will repay the loan. This contract is made after inspecting the financial standing, credit score and repayment capacity.
• In case the dependent is unable to repay the loan, the lender can restore the recovery process under The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. This act allows the lender to auction the property, recover the losses and pay the heirs their share of profit.
• The lender cannot force the deceased’s family or heir to repay the loan. However, the family cannot lay a claim on the property until the loan debt is repaid in full.

Home Loan Insurance

It gets easier for the borrower’s family to manage the loan if the borrower has taken home loan insurance. In the event of the borrower's death, the insurance company repays the loan amount on behalf of the deceased.

A home loan insurance policy can be bought with the home loan to cover the loan amount. Having home loan insurance helps the family members to repay the loan. Reserve Bank of India suggests all home loan borrowers buy a home loan insurance policy while availing a home loan.

Bottom-line

The borrower's death can be a difficult time for the family members, both emotionally and financially. Experts suggest that the borrower should ensure that the family knows about the loan and can handle the loan process if needed. The borrower should buy a home loan insurance policy. In addition, he should intimate the lender about the person responsible for repaying the loan in his absence.