Comment by jaclaz
3 years ago
I don't undersand what changes (besides the duration of the mortgage) I have no idea how the UK laws work, but in Italy the mortgage repayment is passed on to heirs, it is a debt like any other one.
It is a common enough scenario when someone dies prematurely even with "usual" 15-20-25 years mortgages.
'forever' mortgages (ie. interest-only) already exist. They just aren't commonly used in the UK.
They’re not as popular now as interest rates are low enough to make a repayment mortgage affordable to most. Coupled with their association with the Endowment Mortgage scandal [1] they’re not that popular in the UK anymore except as an equity release option.
[1] http://www.bbc.co.uk/news/business-20858236
I guess that is only the case if the inheritors are willing to keep the property. Usually, in most countries, debt is settled with the deceased estate, not with their descendants.
>Usually, in most countries, debt is settled with the deceased estate, not with their descendants.
I am not sure to understand, maybe Italy is the outlier, here after someone dies, the heirs (either determined by the Law or nominated in a will) either accept or refuse the inheritance "as a whole", and the inheritance is composed of credits (like money in the bank, estate/houses, other properties, etc.) and debts (including mortgages, debts or loans taken from privates, past unpaid taxes and similar, etc.).
In most cases there is not (anymore) a mortgage on the houses, but if there is, all obligations are part of the inheritance and are passed on to the heirs (if they accept the inheritance).
There are "special" life insurance policies that cover the residual mortgage repayments in case of death, and while many (I believe most if not all) banks will require one of these they are not mandated by Law, so it may happen that the morthage debt is transferred to the new proprietor(s) of the estate, i.e. the nominated heir(s).
I don't know Italy laws, but everywhere that I'm familiar with, debt doesn't automatically pass to heirs. The heirs can always choose to not take the house, and thus not take the debt either. The house will be sold to pay the debt, if it's insufficient then the lender loses out.
Yes, that is exactly like it works in Italy, the inheritance is made of credits/assets+debts, the heir(s) can (should) evaluate the + and the - and then have the option to either accept or refuse the inheritance as a whole (the good and the bad together).
It is not common that heirs refuse an inheritance as usually the overall balance is positive, but it can happen, in these cases (like the case where there are no known heirs) the whole inheritance goes to the state, that proceeds - as you said - to liquidate the property and repay - in whole or partially - the debts.