Handling estate paperwork after the death of a loved one, the legal and financial matters add more to the pain. One of the first steps in managing the estate is to obtain probate. During this process, funds tied to the property may be inaccessible, making estate-related expenses more difficult to manage. In such situations, securing a probate mortgage can often be a good decision.
On this page, let’s take a look at what a probate mortgage is, and how it can lift a financial burden off you.
What is Probate?
It is related to the legal procedure of administering the estate of a deceased person, so that all outstanding debts, taxes, and liabilities are settled, and you can distribute the remaining assets to any beneficiaries.
A probate is often required if property is involved in the estate. The purpose of the probate is to grant permission to the executor or administrator. Property often forms a significant portion of an estate’s value. Beneficiaries might want to keep the property or sell it. However, in either case, you have to probate.
What are Probate Mortgages?
Since you cannot access the money tied to a probate property, you can instead take a probate mortgage that allows you to borrow money against the value of the said property.
Remember that these loans are usually short-term, and the main purpose is to access the funds before the probate process is over. These funds are a great way to cover a range of costs that come with death like inheritance tax, legal fees, or other debts.
Why Might You Need a Probate Mortgage?
There are several reasons why an executor or beneficiary may seek a probate mortgage:
Inheritance Tax
Inheritance tax has to be paid within six months of the person’s death. Failure to clear the due can result in penalties. Therefore, one of the most common reasons behind a probate mortgage is often the inheritance tax.
Estate Debt
Often, especially with unexpected deaths, there may be debts left behind to settle. Before you distribute any assets, you have to clear the debts which can be done via a probate mortgage.
Property Maintenance
Your property may need repairs or maintenance, you can address them using a probate mortgage. Such expenses when piled up can be overwhelming.
Distribution to Beneficiaries
If your executor and administrators want to distribute the funds to the beneficiaries as soon as possible, a probate mortgage can help conduct that with cash even before the property is sold.
Remember to be very clear about your reason and circumstances. You should consult your executor and a mortgage broker to understand if you should apply for a probate mortgage as not all estates require one. Depending on your situation, alternative funding options can also be explored.
How Do Probate Mortgages Work?
Probate mortgages work similarly to a regular mortgage but as there’s a legal status on your property, there are a few differences.
Property Valuation
The value of your property directly impacts how much you can borrow through the probate mortgage. Lenders are willing to offer 50 to 75% of your property’s value. They require an independent valuation of the property.
Application
Either your executor or you as beneficiary shall apply for the mortgage. As the property is under probate, you have to provide evidence of your authority to act on behalf of the state. You can use a grant of probate or letters of administration.
Loan Agreement
Once your application is successful, the lender will give you the funds against the property. As your estate would be expected to settle within a small time frame, the loan term is also short, usually between a year or two.
Repayment
Once the probate is complete, you may either sell your property or refinance it. This allows you to pay off the loan. For those keeping the property with a family, you can also arrange a new mortgage deal to pay off the probate mortgage.
Things to Keep in Mind
Interest Rates
If lenders find you risky, they will charge your probate mortgages with higher interest rates than standard residential mortgages. Carefully compare mortgages to find the right product with the help of a broker.
Loan Terms
Probate mortgages are short-term loans so you have to make sure the probate is done within the designated time frame. Otherwise, you may have to pay additional interest charges or even face penalties.
Fees
Probate mortgaging is not an inexpensive procedure. You should budget for different costs like arrangement, valuation, or legal fees. There are upfront and ongoing costs to think about.
Fluctuations
The UK property market is very volatile so the value of the property may go up and down during the probate process. Therefore, the amount you can borrow through the probate mortgage can be affected as well as the final sale price.
Conclusion
Death of a loved one doesn’t just come with grief but a bundle of financial responsibilities. A probate mortgage can prove to be a practical solution to access locked funds and clear some estate-related expenses. However, working with a broker to understand if this is truly the right decision is highly recommended.
If you are looking for invaluable expert guidance, contact UK Mortgage Finder to explore your options and find the best mortgage deal tailored to your needs.
