What Happens to Home Loan After Demise of Borrower?
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When a family purchases a dream house with a home loan, they never consider the extreme scenario of what happens to bank loan after the demise of the borrower. The passing away of the primary borrower can be a hard blow to the family. However, knowing about home loan insurance in case of demise can help them manage the debt. Read on to know what happens to home loan if the owner dies.

Who Will Pay the Loan?

In the loan holder’s stead:

  • The home loan insurance company settles the loan amount with the lender. In the absence of insurance, the lender looks for options like these:
  1. If the loan was taken jointly, the onus of repaying the loan falls on the co-borrower.
  2. If there is a guarantor, they will have to pay the loan.
  3. Without these two, the legal heirs must repay the loan.
  • 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 new borrower’s financial standing, credit score and repayment capacity.
  • Suppose no one takes the responsibility of repaying the loan. In that case, the lender can start 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 the profit.
  • The lender cannot force the deceased's family or heir to repay the loan. However, the family can only claim the property once the loan debt is repaid in full.

How Joint Borrowers And Co-Signers Play A Role In Home Loans

Joint borrowers take a joint home loan. But what happens if the home loan borrower dies? If one of them loses life, the surviving borrower is responsible for repaying the loan. The lender has the legal right to approach the joint borrower for the remaining loan repayment. The co-signer also shares the responsibility of repaying the loan if home loan holder paases away.

How Home Loan Insurance Helps Family in Case of Borrower's Demise?

Home loan insurance in case of death offers coverage to the primary borrower's outstanding balance. Consequently, the borrower's family receives financial protection in case of the borrower's demise, incapacity, or disability. The insurance company pays off the outstanding balance to the loan company, saving the deceased's family from the financial burden of the loan.

In addition, the borrower’s family gets peace of mind, knowing that the insurance plan will take care of the home loan after the death of the primary borrower. Moreover, insurance also improves the chances of loan approval at better rates, as the lenders perceive it as an extra layer of protection against default.

Transferring Ownership to Heirs After Borrower’s Demise

If home loan holder loses life, their legal heirs may be responsible for repaying the remaining amount. Getting the will probated or LOA (Letters of Administration) is necessary for the process. The beneficiary must visit the sub-registrar’s office with the relevant documents to get the property transferred in their name. They must approach the sub-registrar with an application form for the ownership transfer, a copy of the will, owner’s death certificate, original property papers, identity proof, address proof, etc.

How to Pay Off the Loan After Demise?

Usually, home loan insurance in case of borrower’s loss of life will pay off the remaining loan balance. If insurance is unavailable, the co-borrower, guarantor, or legal heir can repay the loan. Paying off the loan immediately after the borrower's demise will save the family from extra costs involved with interest charges, etc. In a financial crunch, the family can also sell off the property to get the much-required monetary support after the earning member's demise.

Tax Implications After Borrower's Demise

There are no tax implications on assets that a legal heir receives after an individual's untimely demise. Since it is a transfer without any returns, it qualifies as a gift by the income tax department. However, the Income Tax Act 1961 excludes the transfer under inheritance or will from the purview of gift tax. Therefore, there are no tax implications on property received through inheritance. However, capital gains will be taxable if the heir rents or sells the property.

Legal Aspects and Probate

As the legal heirs receive the deceased person's property, they are also responsible for paying their home loan after borrower’s loss of life. Do you want to know what happens to home loan after borrower’s demise? You must know the process of probate. It is a legal process that allows contesting of the will by heirs, allowing creditors to make claims against the property. In case of a contest, the probate process gets lengthier, during which the lenders must receive notification about the borrower's demise.

Read Also: What is CTC? : CTC Full Form, Meaning & Elements

Frequently Asked Questions

1.) Are there any tax implications for heirs inheriting a property with an outstanding loan?

No, the legal heir has no tax implications on assets received after an individual’s demise. The income tax department qualifies it as a gift without any gift tax.

2.) Do family members inherit the home loan debt when the borrower dies?

Not family members, but the deceased person’s legal heirs inherit the home loan after the borrower’s demise.

3.) Is it possible to pay off the remaining home loan balance after the borrower's demise?

The borrower's co-applicant, guarantor, or legal heir can pay off the remaining home loan after demise.


The borrower's loss of life can be a difficult time for the family members, both emotionally and financially. Home loan insurance in case of death makes the process easier. However, the borrower should ensure the family knows about the loan and can handle the loan process if needed. Until the process settles, ensure paying the EMIs on time to avoid foreclosure. Seek professional advice if needed to streamline the process and avoid hassles during the already tough time.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.