A home loan is a powerful tool that can empower one to own a home. But it is also a long-time commitment with a tenure spanning anywhere from five years to 30 years. This brings us to the question – what happens if the borrower passes away in the middle of the tenure? Who is responsible to pay the monthly instalments in such a scenario? What if the family is not financially equipped to pay the remaining EMIs? Would the bank take over the property to sell and recover the remaining dues? What about the EMIs that have already been paid?
Before we answer these questions, let’s be clear that the bank does not immediately take over the possession of the property. In fact, it is usually the last resort after exhausting all the other options.
Home loan insurance
Most of the financial institutions, these days, offer home loan insurance policy to the borrowers while availing a home loan, which covers a borrower’s outstanding loan liability. It is useful in case of unfortunate events like loss of income or death of the person paying the EMIs. So, if the borrower has home loan insurance, the insurance company will settle the remaining dues with the bank.
However, the insurer would do so only if there is no co-borrower, and the deceased has died an unnatural death. If it is a joint home loan, then the co-borrower will be responsible to pay the EMIs.
Repayment options
If there is no home loan insurance policy, the responsibility of paying EMIs would fall on the co-applicant or the guarantor, if there is any. In the absence of a co-borrower or guarantor, the bank will approach the legal heir of the property. Once the bank is convinced of the repayment capabilities of the legal heir or co-borrower, a new home loan contract will be created in the name of the new owner.
If the legal heir is unable to repay
What happens if the legal heir is not able to pay the remaining dues? Well, in such a scenario, the same must be communicated to the bank. Once the bank is convinced, it resorts to the last option – repossessing the property to recover the dues.
Here, if the loan is more than what is earned through the sale, the legal heir would have to pay the remaining amount. But if the worth of the property is more, the remaining amount would be paid to the legal heir.
To conclude
Since opting for an insurance policy on a home loan is entirely the borrower’s prerogative, many do not opt for it as it involves paying a policy premium. However, if your pocket allows, consider buying a one. You need not take it from the same bank as you are taking a loan. Always weigh the pros and cons of different policies offered by different insurance companies.