What happens if you pass away before repaying your home loan in full

If you are buying the home together with a family member, they could inherit your share of the debt

Spouses purchasing property together usually do so as joint tenants. This means that the debt belongs jointly to both of them. If one of the spouses pass away, the other will be liable for the full sum.

To complicate matters further, the surviving spouse cannot automatically take over the loan. Rather, the bank will assess whether they are able to handle the mortgage repayments on the loan. The Total Debt Servicing Ratio (TDSR)¹ might also be lowered since there is now only one person repaying the loan.²

If your spouse is unable to repay the loan without you, your family might lose their home as the bank has the right to take possession of the property.³

As you can see, mortgage protection is essential if you are contributing towards repayment of your home loan together with your spouse. A mortgage insurance policy like ManuProtect Decreasing (II) ensures that any unpaid sums on your home loan are covered if you pass away, thereby removing the burden of repaying the home loan from your spouse’s shoulders.

If the home purchase and mortgage were in your name only, the executor will draw upon your estate to pay off the debt

Suppose the home purchase and mortgage are in your name only and you are the only one making home loan repayments.

Upon your passing, the executor or administrator will try to pay off the mortgage using your estate. This will have a negative impact on your family’s inheritance.

The executor or administrator can also sell the property in order to pay off the home loan⁴ , which would cause your family to lose their home and force them to find alternative accommodation.

If you have mortgage insurance protection, any remaining sums on your home loan will be repaid when you pass away. Your family will thus be able to continue living in a fully paid-up home without affecting their inheritance.

If the loan cannot be repaid, the bank can take possession of your property

When you commit to a home loan, you are putting your home up as collateral in exchange for money being lent to you.⁵ This means that the lender can take possession of your home if you fail to repay the loan.

If the bank takes possession of your home, your family will no longer have the right to reside there. They will thus have to move out and look for a new place to live.

Mortgage insurance ensures that your mortgage gets repaid no matter what happens to you. If you pass away, your mortgage protection will pay for any unpaid sums on your home loan. This offers your family the assurance that they can continue to live in the place they call home no matter what, and also gives them the benefit of having a fully repaid home loan.

HDB flat buyers using their CPF Ordinary Account (OA) savings to repay a home loan are automatically protected by the Home Protection Scheme (HPS)⁶ until the age of 65.

The HPS is a home loan insurance plan that ensures that your family does not lose their home if you pass on, become totally and permanently disabled or are diagnosed with a terminal illness.

It is important to note that the HPS only insures you up to the age of 65. So, if your home loan will not be fully paid by the time you are 65, you need to make arrangements to get your own mortgage insurance when your HPS protection lapses.

All private property buyers as well as HDB buyers who are not using their CPF OA to repay their home loans will need to arrange for their own mortgage protection from the start of the home loan.

If you are over 65, buying private property or not using your CPF OA to repay your mortgage, you do not have mortgage protection from the HPS. Having a mortgage insurance policy would definitely help in protecting your family to ensure they can live their best lives with a secure roof over their heads. Discover the benefits of a home loan insurance with ManuProtect Decreasing (II). 

Disclaimer:

These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This article has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.

This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC web-sites (www.lia.org.sg or www.sdic.org.sg).

We recommend that you seek advice from a Manulife Financial Consultant or its Appointed Distributors before making a commitment to purchase a policy.

Information is correct as of 25 November 2020.