Can I assume my parent's mortgage when they die?

Yes, in most cases. The Garn-St Germain Depository Institutions Act (12 U.S.C. §1701j-3) prohibits lenders from enforcing the due-on-sale clause when a property transfers to a relative upon death. Spouses, children, siblings, and parents are generally protected. Notify the lender in writing with a death certificate and proof of relationship, then continue making payments.

What happens to a reverse mortgage when the borrower dies?

When a HECM (reverse mortgage) borrower dies, heirs have 30 days to notify the lender of their intentions, then 6 months (extendable to 12 months) to act. Options include: sell the home and keep proceeds above the loan balance; refinance and pay off the balance (at most 95% of appraised value); or walk away with no personal liability since HECM is non-recourse.

What is the step-up basis for inherited property?

Under IRC §1014, inherited property receives a stepped-up cost basis equal to the fair market value at the date of death. This eliminates capital gains tax on all appreciation during the decedent's lifetime. If you sell shortly after inheriting, your gain is minimal (only post-death appreciation). This is one of the most valuable tax benefits of inheritance.

How do you buy out siblings on an inherited property?

If multiple heirs inherit a property and one wants to keep it, that heir can do a cash-out refinance. The new loan pays off the existing mortgage and provides cash to buy out the co-heirs. For example, if the home is worth $400K with a $200K mortgage and 3 heirs, each heir's share is $66,667. A buyout requires refinancing to $333,333 ($200K original + $133,334 for two siblings).

Does probate affect my inherited mortgage?

Probate does not stop mortgage payments — the estate must continue making payments during the process or risk foreclosure. Probate fees (typically 3-7% of estate value) reduce the net equity heirs receive. Properties held in a living trust bypass probate entirely, preserving full equity and transferring the property (and mortgage) directly to beneficiaries without court involvement.

Inherited Mortgage Calculator

Understand your options when a family member dies with a mortgage. Calculate whether to assume the loan, refinance, or sell — including Garn-St Germain protection, multi-heir buyouts, and step-up basis analysis.

Mortgage Balance

Home Value

Existing Rate

Years Remaining

yrs

Your Situation

Your Relationship to Deceased

Monthly Payment (Assumed)

$1,276

Existing 3.50% rate for 20 yrs remaining

Garn-St Germain Act: As a child, you are eligible to assume this mortgage without triggering the due-on-sale clause under 12 U.S.C. 1701j-3.

Current Equity

$180,000

Assume Payment

$1,276/mo

Refi Payment

$1,427/mo

Net Sale Proceeds

$156,000

Advanced

Advanced Calculator

Assume vs refi vs sell comparison, Garn-St Germain eligibility, multi-heir equity split

Full side-by-side comparison of all three paths for your inherited property.

Assume Mortgage

$1,276/mo

Rate: 3.50% (keep existing)

Term: 20 yrs remaining

Closing costs: ~$0

Save $151/mo vs refi

Total interest: $86,219

Refinance

$1,427/mo

Rate: 6.75% (new loan)

Term: 30 yrs

Closing costs: ~$6,600

Put title in your name

Total interest: $293,690

Sell Property

$156,000

Home value: $400,000

Selling costs: $24,000

Mortgage payoff: $220,000

Net proceeds: $156,000

Best Rate Option

Assume at 3.50%

Lower rate saves money long-term

Assume vs Refi Savings

$151/mo

Per month, assuming is cheaper by this

Refi Break-Even

N/A - Assume is cheaper

Time to recoup refi closing costs

LTV Ratio

55.0%

$220,000 / $400,000

Pro

Professional Simulator

Reverse mortgage (HECM) inheritance rules, probate cost impact, step-up basis capital gains

HUD HECM (reverse mortgage) heirs face specific rules. They have 30 days to elect, then up to 6 months (extendable to 12 months) to act: sell, refinance at 95% of appraised value, or pay the lesser of loan balance or 95% of value.

HECM Balance

$220,000

Amount owed to reverse mortgage lender

Home Value

$400,000

Current appraised value

95% of Appraised Value

$380,000

Maximum heirs must pay to keep home

Heirs Pay

$220,000

Lesser of balance or 95% appraised

Sale Net Proceeds

$156,000

If heirs sell property

Refi to Keep

$1,427

New 6.75% loan payment

Option	Action	Timeline	Net to Heirs
Sell Property	List and close sale	Within 6–12 months of death	$156,000
Refinance to Keep	New conventional loan for $220,000	Must close within 6 months	$1,427/mo ongoing
Deed in Lieu	Sign deed over to lender — no foreclosure	Any time within deadline	$0 (non-recourse protection)
Walk Away	Heirs are not personally liable (non-recourse)	After deadline passes	$0 — lender forecloses

How to Use This Inherited Mortgage Calculator

Enter the Mortgage Balance (remaining amount owed), Home Value, and the Existing Rate and years remaining. Select your Situation — whether you plan to assume the existing loan, refinance into a new one, or sell the property — and your Relationship to Deceased for Garn-St Germain Act eligibility.

The calculator shows your payment under each scenario and confirms your legal right to assume without triggering the due-on-sale clause. The Advanced section compares all three options side-by-side and calculates multi-heir buyout amounts. The Pro section covers reverse mortgage (HECM) inheritance rules, probate cost impact, and the step-up basis capital gains benefit.

Your Three Options at a Glance

Assume: Keep the existing loan at the same rate and terms. Often the best choice if the rate is below today's market rate.
Refinance: Pay off the existing mortgage with a new loan in your name. Required if you want to remove other co-borrowers or combine with a buyout.
Sell: List the property, pay off the mortgage at closing, and split remaining proceeds among heirs.

Key Formulas

Assume Payment = monthlyPayment(balance, existingRate, yearsRemaining)

Refi Payment = monthlyPayment(balance, newRate, newTerm)

Net Sale Proceeds = HomeValue − MortgageBalance − (HomeValue × SellingCostPct)

Multi-Heir Buyout Loan = OriginalBalance + (Equity / TotalHeirs × BuyoutHeirs)

Step-Up Gain = max(0, FutureSalePrice − FairMarketValueAtDeath)

Tax Savings from Step-Up = (GainWithoutStepUp − GainWithStepUp) × LTCG Rate

Example: The Johnson Family Inheritance

Three Siblings Inherit Their Mother's Home

Their mother passed away with a 3.25% mortgage from 2020. Current market rate is 6.75%. Three adult children must decide what to do.

Home Value	$420,000
Mortgage Balance	$185,000 at 3.25%
Years Remaining	22 years
Total Equity	$235,000
Assume Payment	$952/mo (keeping 3.25%)
Refi Payment (6.75%)	$1,200/mo — $248/mo more
Net if Sold (6% costs)	$209,800 ($69,933 per heir)
Sibling 1 Buyout Loan	$185K + $156,667 = $341,667

Sibling 1 refinances to $341,667 at 6.75% for 30 years = $2,216/mo. Siblings 2 and 3 each receive $78,333. Sibling 1 retains the home and gains the step-up basis of $420,000 — any future sale gain below $420K is tax-free.

Frequently Asked Questions

Yes, if you qualify under the Garn-St Germain Depository Institutions Act. As an eligible family member (spouse, child, sibling, or parent), you can assume the existing mortgage at its current rate and terms without the lender being able to call the loan due. This is especially valuable if the inherited mortgage has a rate significantly below current market rates. Notify the lender in writing with a death certificate and proof of relationship.

The Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. §1701j-3) is a federal law that prohibits lenders from enforcing due-on-sale clauses in certain circumstances, including when property transfers to a relative upon death. The law specifically protects transfers to spouses, children, siblings, and parents. Non-relatives and distant family members may not be covered, and some occupancy requirements apply.

Yes. The mortgage must continue to be paid during probate or the property faces foreclosure. The estate is responsible for making payments from estate funds during the process. Probate can take 6 months to 2 years depending on the state and complexity. Properties held in a living trust bypass probate entirely and transfer directly to beneficiaries, avoiding this gap in ownership clarity.

When a HECM reverse mortgage borrower dies, heirs have 30 days to notify the lender of their intentions. They then have 6 months (extendable twice by 90 days each) to act. Heirs can sell the home and keep proceeds above the loan balance, pay off the balance (maximum 95% of appraised value to keep the home), or walk away with no personal liability since HECM is non-recourse. Heirs are never personally liable for the difference if the home is worth less than the loan balance.

Under IRC §1014, when you inherit property, your cost basis becomes the fair market value at the date of the decedent's death (the "stepped-up basis"). This eliminates capital gains tax on all appreciation that occurred during the decedent's lifetime. If you sell the property shortly after inheriting at the same value, you owe zero capital gains tax. If you hold and the property appreciates further, you only owe gains on post-inheritance appreciation.

Inherited Mortgage Calculator

How to Use This Inherited Mortgage Calculator

Your Three Options at a Glance

Key Formulas

Example: The Johnson Family Inheritance

Three Siblings Inherit Their Mother's Home

Frequently Asked Questions

Related Calculators

Sources & References