Inherited property with a mortgage: what happens to the loan
When someone dies owing a home loan, the debt passes to their estate and stays secured on the property; it does not disappear. The executor or surviving borrower notifies the lender, and the beneficiaries then pay the loan out from the estate, sell the home, take the mortgage over if the lender allows, or refinance once the title is in their name. If the home was the deceased's main residence, selling under a contract that settles within 2 years of the death lets the CGT exemption carry over, subject to the ATO's other conditions.
- The loan becomes a debt of the estate, secured on the home; the executor or surviving borrower notifies the lender as soon as possible (Unloan)
- Four options: pay it out from the estate, sell and repay from the proceeds, take over the mortgage if the lender allows, or refinance once the title transfers (Unloan)
- Joint tenants: the deceased’s share passes to the surviving owner, who becomes solely responsible for the loan (Unloan)
- CGT: sell a deceased’s main residence under a contract that settles within 2 years of death and the exemption can carry over (ATO)
- Interest accrues through probate; keep repayments current and ask the lender for its deceased estates and hardship teams
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are calculated on a secured loan of $150,000 over 25 years for home loans, a loan of $30,000 over 5 years for car and personal loans, and $50,000 over 5 years for equipment finance, unless the lender states another basis.
What happens to the loan when someone dies?
Unloan's definition: a deceased estate is the assets, liabilities and possessions someone leaves behind, everything they owned or had an interest in at death, distributed according to the will or, without one, the state's intestacy rules. A home loan is one of the liabilities and it stays secured on the home. Unloan publishes what usually happens: the surviving joint mortgage holder or the executor notifies the lender; the lender assesses the outstanding balance, interest rate and terms and whether the repayments are up to date; and the lender then provides options. Do the first step early. Interest accrues through probate, and a loan that slips into arrears narrows every option that follows.
The four options
| Option | How it works, as Unloan publishes it | When it fits |
|---|---|---|
| Pay off the mortgage from the estate | If the estate has sufficient funds, the loan is repaid in full and the property is transferred to the beneficiaries unencumbered | Estates with cash or other assets, and beneficiaries who want the home |
| Sell the property | If the estate cannot repay the loan or the beneficiaries do not want the property, it is sold and the proceeds repay the mortgage, with the balance distributed | Most estates where nobody will live in the home; watch the two-year CGT window |
| Take over the mortgage | In some cases the lender allows the beneficiaries to assume the loan and continue the payments, depending on their finances and the lender's policy | A beneficiary who will live there and can service the loan; assessed as new credit |
| Refinance | Once the property is transferred, a new loan in the beneficiary's name pays out the estate's loan, and can release equity to pay other beneficiaries | One beneficiary keeping a home left to several; see the refinancing guide |
Joint tenants and surviving partners
If the home was owned with a partner as joint tenants, Unloan publishes that the deceased's share of the property is transferred to the survivor, who becomes solely responsible for servicing the loan. The title passes by survivorship outside the will, but the loan does not change on its own: the survivor should notify the lender, provide the death certificate, and ask for the loan to be varied to their sole name, which may involve a reassessment of their income. Under tenants in common the deceased's share passes under the will instead, and the surviving co-owner and the beneficiaries have to agree on one of the four options above. Life insurance or mortgage protection insurance, where it exists, pays the estate or the lender directly and can settle the loan before any of this arises.
The two-year tax rule
The ATO publishes a set of questions that decide whether capital gains tax applies to an inherited home, and one of them is timing: you meet the requirement if you dispose of the property under a contract that settles within 2 years of the deceased's death. Where the property was the deceased's main residence and not used to produce income, and the other conditions on the ATO's page are met, the main residence exemption carries over to a sale inside that window. After two years the exemption is apportioned, and the ATO notes exceptions for a surviving spouse or someone with a right to occupy under the will. The lending and the tax clocks run together: if a sale is the plan, the executor should not let probate and marketing drift past the two years. This is general information; the ATO's page and your accountant decide your case.
Refinancing an inherited property
The usual case is a home left to more than one child where one wants to keep it. The executor transfers the title, the person keeping it refinances in their own name for the existing loan plus the amount needed to pay out the others, and the loan is assessed on their income like any refinance, with a valuation of the property. The home equity loan guide covers how much a lender will advance against the home, and the borrowing power calculator whether one income carries it. If the timing is tight, a bridging arrangement can hold the position while the estate settles. A broker sequences the transfer, the valuation and the new loan so they settle together; get matched with a licensed broker who works this kind of lending, and take legal and tax advice on the estate separately.
After a death in the family
The loans and the calculators for the options.
Inherited property and mortgage FAQs
What happens to a mortgage when the owner dies in Australia?
Can I assume the mortgage on an inherited property?
What is the 2 year rule for deceased estate property?
Who pays the repayments while the estate is sorted out?
Can I refinance an inherited property?
Does the estate have to sell the house to pay the mortgage?
Keep the family home without the estate stalling
Tell us who is keeping the property and what the loan and the estate look like, and we refer you to one licensed broker partner who structures the take-over or refinance around probate and the two-year window. Free for borrowers, no obligation.