Skip to main content
WUHLD
← Back to glossary

Mortgage

Also known as: Home Loan, Property Loan

Definition

A mortgage is a loan secured against property that allows you to buy a home, where the lender can repossess and sell the property if you fail to make repayments.

Understanding how mortgages interact with your estate is essential for will-making, as mortgage debt doesn't disappear when you die and significantly affects what your beneficiaries actually inherit.

What Does Mortgage Mean?

A mortgage is a secured loan where two parties are involved: the mortgagor (you, the borrower who owns the property) and the mortgagee (the lender, typically a bank or building society). Unlike unsecured debts like credit cards, a mortgage gives the lender a legal interest in your property. If you fail to make your monthly repayments, the lender has the legal right to repossess and sell your home to recover their money. Under the Law of Property Act 1925, mortgages are legally protected arrangements that typically span 25-35 years, with monthly payments covering both the capital (the amount borrowed) and interest.

When you die, your mortgage debt remains a liability against your estate. Your executor becomes responsible for managing the mortgage during probate, which typically takes 6-12 months. Most lenders allow this grace period before requiring payment. Emma dies leaving her £350,000 home to her daughter Sarah. The property has an outstanding mortgage of £120,000. Sarah can either take over the monthly mortgage payments (around £600 per month), sell the house and inherit the remaining £230,000 after paying off the mortgage, or keep the house and rent it out to cover the mortgage costs. Many people protect their families by taking out life insurance designed to pay off the mortgage upon death—for example, David has a £200,000 mortgage and a life insurance policy for £200,000. When he dies, the insurance pays off the mortgage in full, allowing his wife to inherit the property debt-free.

For inheritance tax purposes, mortgages reduce your taxable estate value. HMRC allows you to deduct outstanding mortgage balances from the property value when calculating inheritance tax (HMRC Inheritance Tax Manual IHTM24152). A £400,000 house with a £150,000 mortgage is valued at £250,000 for estate purposes. This can bring estates under the £325,000 nil-rate band or the residence nil-rate band, potentially saving thousands in inheritance tax. If you own property as joint tenants with a joint mortgage, the surviving owner automatically becomes solely responsible for the mortgage. Buy-to-let mortgages work differently than residential mortgages, often involving interest-only arrangements where monthly payments don't reduce the debt. Equity release mortgages, common among retirees, typically have no monthly payments and are only repaid when the property is sold.

Common Questions

"What happens to my mortgage when I die?" When you die, your mortgage debt doesn't disappear—it remains tied to the property. Your executor must pay the mortgage from your estate, either by using life insurance proceeds, selling the property, or the beneficiary taking over the mortgage payments. Most lenders allow a 6-12 month grace period during probate before requiring payment.

"Can beneficiaries inherit a property with a mortgage still on it?" Yes, beneficiaries can inherit property with an outstanding mortgage. The beneficiary then has three main options: take over the mortgage payments and keep the property, sell the property and use proceeds to pay off the mortgage, or rent out the property to cover mortgage costs. The mortgage must be disclosed when valuing the estate.

"Does my mortgage count towards my estate for inheritance tax purposes?" No, mortgages reduce your estate value for inheritance tax purposes. When calculating inheritance tax, HMRC allows you to deduct outstanding mortgage balances from the property value. For example, a £400,000 house with a £150,000 mortgage is valued at £250,000 for estate purposes.

Common Misconceptions

Myth: "When I die, my mortgage dies with me and my family gets the house for free"

Reality: Mortgage debt doesn't disappear when you die. The outstanding balance must be paid from your estate before any assets can be distributed to beneficiaries. If your estate can't pay the mortgage, the lender can force the sale of the property to recover their money.

Myth: "My children will automatically inherit my mortgage payments and have to keep paying it"

Reality: Beneficiaries who inherit property are not automatically obligated to continue mortgage payments. They choose whether to take over the mortgage (subject to lender approval based on their own affordability), sell the property to pay off the debt, or use other estate assets or life insurance to clear the mortgage. The choice belongs to the beneficiary.

  • Equity: The portion of property value you own after deducting the mortgage—beneficiaries inherit the equity, not the gross property value.
  • Debt: Mortgages are a type of secured debt that takes priority in estate administration alongside other liabilities.
  • Life Insurance: Commonly used specifically to pay off mortgages upon death, protecting beneficiaries from inheriting property debt.
  • Main Residence: Your primary home typically carries the largest mortgage and is eligible for the residence nil-rate band for inheritance tax.
  • Buy-to-Let Property: Investment properties with different mortgage terms (often interest-only, higher rates) and different inheritance considerations.

Need Help with Your Will?

Understanding how your mortgage affects your estate is essential for accurate will planning. Whether you have an outstanding mortgage or own your home outright, WUHLD guides you through leaving property to beneficiaries with clear, legally binding instructions.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.