Dying With a Huge Mortgage

[brett]

I do not understand what the big issue is.

If you wish to do it, fine. If not, that is fine to. There is hardly a right way and a wrong way. Nothin more than different opinions...none of them right or wrong.

 

[daylatedollarshort]

30 year mortgages are 3.5%, 30 year TIPS with 6.7% (-.07 negative yield + 7% inflation factor). Pretty nice spread for those who like to play the mortgage games! Even better if you have a 2 - 3% mortgage and older TIPS returning 9 - 10%, with the relative safety of Treasuries.

 

[Scuba]

With no children, our goal is to never pay our mortgages off. We own two properties. One is a rental so it would make no sense to pay that mortgage off. The other is our primary residence and the current mortgage we have will not be paid off until 2050. We paid cash for the house due to a very competitive market, but immediately after closing we took out a mortgage. Refinanced it less than a year later due to great rates.

For us, liquidity helps us sleep at night. Paying a 3% mortgage off over time does not worry us in the least. We could easily pay both mortgages off if the need arose.

 

[tulak]

It actually does make sense. A lot of sense. They don't automatically the next day get access to the estate funds. It takes time. In some cases, lots of time.

How much time do you think this takes?

Maybe my experience was unique, but I went through this as executor of an estate and there wasn’t a big delay in getting access to estate funds to pay bills.

And the payment isn’t due the next day. Realistically, you’ll probably have a buffer before you have to pay any bills and odds are if you are late, it won’t be a big deal as long as you make it current quick enough.

 

[daylatedollarshort]

With no children, our goal is to never pay our mortgages off.

Even with kids I don't see an issue. When we pass the estate will pay the mortgage until it is settled and then there is enough to pay it off. Even if the estate account didn't get set up right away, our kids have savings they could pay the mortgage from for a few months, if needed.

 

[daylatedollarshort]

How much time do you think this takes?

Maybe my experience was unique, but I went through this as executor of an estate and there wasn’t a big delay in getting access to estate funds to pay bills.

And the payment isn’t due the next day. Realistically, you’ll probably have a buffer before you have to pay any bills and odds are if you are late, it won’t be a big deal as long as you make it current quick enough.

Even on a $550K mortgage, corn18 said his payments are under $2k a month. So if the estate took 2 months to set up, and with 2 adult children heirs, that is $2K per adult kid to each to cover the mortgage for 2 months. I don't see that being a huge burden for our kids compared to the extra money we are adding annually into our estate from the mortgage vs. TIPS differential ($20K or so this year).

 

[MissMolly]

How much time do you think this takes?

Maybe my experience was unique, but I went through this as executor of an estate and there wasn’t a big delay in getting access to estate funds to pay bills.

And the payment isn’t due the next day. Realistically, you’ll probably have a buffer before you have to pay any bills and odds are if you are late, it won’t be a big deal as long as you make it current quick enough.

There are threads on this site, on MMM, on Bogleheads that detail how some estate settlements can drag on forever due to one problem or another. I'm sure the deceased in these cases never anticipated events would transpire the way that they did. It's great that your kids can easily eat additional thousands of dollars outgo to keep up payments. That's not always the situation for everyone.

 

[Magus]

Eh, mortgage or no mortgage, your kids will have expenses on the house to cover before they can access everything - taxes, utilities, maintenance, HOA fees, cleaning up the place, etc so there is already a potentially significant financial and time burden to cover until they get access to everything and ultimately sell the place. For a lot of places, property taxes at that point may be much higher than the P&I - and depending on the timing - may need the entire amount quickly. Many banks actually are fairly understanding with this as well, especially credit unions where a lot of my mortgages are.

If your kids are in a good spot and/or financially reasonably savvy, I don't think having a mortgage is going to make difference in terms of paying but may increase their inheritance. Plus, you can setup your mortgage payment to be autodrafted out of your bank account which should continue after your death.

That said, as a person with elderly parents and a wife with elderly parents, I don't care if they leave us anything at all - I'd prefer them to spend their last time on their last day and enjoy their remaining years!

 

[jollystomper]

And good for you jolly! But remember that some of us did not have our retirements fortified by an inheritance. Being efficient with and taking advantage of opportunities with our investments is the only way we have access to the extras your inheritance funds for you.

Sooooo……. Do what is right for you with your circumstances. Some of us need to fight a bit harder to enjoy the same things.

Please show me where I said I had my retirement "fortified" by an inheritance. My "extras" were funded by the consistent savings, expense management, "simple" investments decisions I made and minimizing debt, *not* by my portion of this inheritance .



My illustration was to point out that even in the best of conditions it can take a while to deal with a house that is part of an estate. And we choose to make it easier for our kids.

 

[tulak]

There are threads on this site, on MMM, on Bogleheads that detail how some estate settlements can drag on forever due to one problem or another. I'm sure the deceased in these cases never anticipated events would transpire the way that they did. It's great that your kids can easily eat additional thousands of dollars outgo to keep up payments. That's not always the situation for everyone.

Details here are important. I would be surprised if any of these cases had substantial delays to access funds to pay bills. You don’t have to settle all accounts and I would be surprised if any major brokerage, such as Fidelity, would cause delays in transferring funds to the estate.

As a person that went through this for an estate, it was a non-issue. And as a person with a big mortgage, I’m not at all worried about the executor of my estate getting access to enough funds to pay bills until real assets are disposed and the estate can be settled.

I would also never pay out of my accounts for something in the estate. Well, maybe if I was the sole beneficiary. Otherwise it could cause problems. Best to keep it all separate.

Anyways, I think I’ve said enough on this point. As always, we all have our preferences and for some reason mortgages, or lack thereof, is a touchy subject.

 

[Magus]

Why would the mortgage not be set for auto-draft anyway out of the deceased checking account (before they were deceased)?

 

[RunningBum]

Why would the mortgage not be set for auto-draft anyway out of the deceased checking account (before they were deceased)?

Won't the bank freeze the account when they get the death notice? That would stop the auto-drafts.

 

[MissMolly]

Won't the bank freeze the account when they get the death notice? That would stop the auto-drafts.

Exactly. And Fidelity or Vanguard or whoever is not going to make funds readily available for transfer. They require death certificates which take time. Then you mail them in and they are promptly lost. So you mail them in again, etc. Yes, some estates close quickly and easily without issue. Others do not. I don't have a crystal ball to know how it will go when we die. I choose to keep it as simple as possible for my kids.

 

[sengsational]

Having a mortgage at death is just one more thing of many that will need to be tidied up. But mortgage or not, clear title is essential. My FIL had a mortgage that bounced around various lenders during the mortgage chaos years, and he paid it off. Then, later, had some HELOCs and paid them off. So it turns out that the original, paid-off mortgage wasn't recorded as such at the courthouse. That was a royal pain. So whether you have a mortgage or not, it's often easy to do a title search yourself, online. I made a folder "clear title" and it has all the document numbers recoding associated loans. My FIL probably thought that because he was able to get HELOCs, and have those recoded as paid-off, the title was clear, but that wasn't the case.

 

[street]

I wouldn't want to leave this world with a mortgage for anyone to deal with regardless of simple or being complicated. I would think it would be so much easier to have things like that clean cut and dry.
I also don't see in the long haul that there is any savings financially to go to the grave with a large mortgage.

Again, I am very unorthodox when it has come to ER and how I got to where I am today. Very few times through the years of discussion here on ER, have I gone the route to financial success that other have, but obtained it completely different. My thinking isn't the norm to ER so need to take that into consideration.

 

[RetiredAt55.5]

Why would the mortgage not be set for auto-draft anyway out of the deceased checking account (before they were deceased)?

Won't the bank freeze the account when they get the death notice? That would stop the auto-drafts.

I'm just curious - who's adding money to the checking account to ensure there's sufficient money there to cover the auto-drafts for various payments?

At some point, any pension, SSA, and other direct deposits are going to stop.

 

[RetiredHappy]

I'm just curious - who's adding money to the checking account to ensure there's sufficient money there to cover the auto-drafts for various payments?

At some point, any pension, SSA, and other direct deposits are going to stop.

We always have about $100K in our checking account to cover bills. It should be cover outstanding credit card bills and maybe about 6 more months of running cost of utilities after we are dead. Hopefully that is sufficient while the estate get a handle of what needs to be paid, accounts transferred and properties sold.

 

[MissMolly]

We always have about $100K in our checking account to cover bills. It should be cover outstanding credit card bills and maybe about 6 more months of running cost of utilities after we are dead. Hopefully that is sufficient while the estate get a handle of what needs to be paid, accounts transferred and properties sold.

But unless some other living person is on those accounts, they are frozen upon death. You still have to wait for the estate to settle to access the funds, regardless of whether they are on auto-draft or not.

 

[brett]

But unless some other living person is on those accounts, they are frozen upon death. You still have to wait for the estate to settle to access the funds, regardless of whether they are on auto-draft or not.

Not quite. I have been the executor on two estates. In our jurisdiction the bank did not freeze any account until such time as we produced the death certificate. That typically took 2-3 days for the ones I needed.

We transferred funds out of co-accounts and we had a look in the bank safety deposit box prior to getting the death certificate and having everything locked. Same with the deceased's credit cards. We needed a death certificate to cancel them.

Paying bills was not an issue. We wanted to move as much money out of the probate process as possible.

The reality is that if you can carry a 400k mortgage, invest the money in a conservative manner, the upside net of mortgage interest can be as much as
$20-24K or more each year. Nothing like using some else's money to generate income for yourself.

From my perspective, it certainly is better than a reverse mortgage for someone who is in need of the additional income. $400K is not a huge mortgage for many people.

Paying off a mortgage on death is not a big issue nor is making the payments for a few months or not making the payments for a few months on the deceased person's mortgage.

My guess is that someone who is astute enough to use the mortgage money in this way is astute enough to arrange their financial affairs in such a way as to make it easy for the executor.

 

[RetiredAt55.5]

We always have about $100K in our checking account to cover bills. It should be cover outstanding credit card bills and maybe about 6 more months of running cost of utilities after we are dead. Hopefully that is sufficient while the estate get a handle of what needs to be paid, accounts transferred and properties sold.

I understand the rationale for doing that. That is a lot of money to keep in a low/no interest bearing account though.

That also exposes a lot of money to possible fraudulent ACH transfers, depending on how vigilant your bank is.

 

[jazz4cash]

I’m in favor of having a mortgage and paying it off on time or just a bit early. I don’t think in terms of the mortgage balance being invested “in the market” which is risky. If I were to payoff early the funds would come from CDs which are currently paying 3.7% or more. Using those funds to payoff a 2.75% mortgage does not make sense to me. Plus, the funds are tax deferred so that’s another consideration. As these CDs mature, paying down 2.75% debt could become more attractive. Having a mortgage is just another financial tool.

I believe heirs have some rights with regard to assuming a mortgage and I expect a decent mortgage company will be flexible in the event of a death.

My takeaway from this discussion is that if you do choose to keep a mortgage, keep some accessible funds available to pay expenses while the estate is being settled. Thanks to this thread I will develop a plan to include discussions with heirs, joint accounts, named beneficiaries, etc to prepare for this possibility.

 

[tulak]

Won't the bank freeze the account when they get the death notice? That would stop the auto-drafts.

Odds are you as executor would notify the bank, at which point you’d transfer the funds to the estate checking account and pay the mortgage and other bills.

In my case, I opened an estate checking account at the same bank, which made the transfer of funds trivial.

This really is a non-issue, but if you have concerns, then do what makes you happy.

 

[tulak]

Thanks Brett. Your experience mimics mine. I think there’s a misunderstanding on how estates are handled. Once you’ve gone through it, it’s not that bad, but it is work.

More work is actually selling the property. That took time and can be a hassle, especially disposing of all the accumulated stuff and getting it ready for sale. And you hope that the market is good when you’re selling, but you can always discount and be done with it.

 

[ExFlyBoy5]

Estates *can* be very complex. California is famous for having estate issues. Just because people report "no issues!!!" in the couple of estates they have been invloved in doesn't mean that it will be a cake walk for others. There are a LOT of estate attorneys out there and there is a reason for that. Also, death certificates CAN be issued quickly but in some cases, they are not and that can complicate things.

It would be great if folks could stop making broad assumptions and perhaps should read their own signature lines.

 

[Dog]

I'm just curious - who's adding money to the checking account to ensure there's sufficient money there to cover the auto-drafts for various payments?



At some point, any pension, SSA, and other direct deposits are going to stop.

Bingo. I handled my mothers probate. Thankfully, no home to sell or mortgage. I was amazed at how quickly the SS and pension were shut down (within a month). And yes, bank accounts were frozen. Thankfully, I was on one of her savings and her checking account so I could pay the bills that needed closed out. Her VERY modest estate took a year to settle and she had all her will,paperwork, and wishes in order. The best gift she could have given us.

Dealing with a parents death is difficult. Why add complications that aren’t necessary just for more $?