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What happens when you inherit a property that still has a mortgage on it?

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I stand to inherit my parents' apartment one day, but the mortgage most likely won't be paid off yet. Am I required to refinance? And what if I don't qualify?


If you inherit a property that hasn't been paid off in full, you have a couple of different options.

"You don't necessarily have to refinance," says Peter Lucia, a branch manger with Loan Depot. "You can continue to simply pay the mortgage. As long as they're getting money, the bank is happy."

However, Lucia notes, refinancing might be your most advantageous option for a number of reasons. First, if the interest rate on the current mortgage is higher than current rates (which is likely given the state of recent mortgage rates), refinancing would mean lower monthly payments. 

Secondly, Lucia notes, if you're refinancing on an inherited property, "you can take out loans against the property immediately. The only time you're allowed to cash out on a property you've owned for less than six months is if it's inherited." This is good news whether you're hoping to, say, finance some renovations on the home's dated kitchen or bathroom, or if you simply hope to take out some personal loans against the property's equity.

If you can't make the monthly payments or don't qualify for refinancing, the answer's simple: "You would have to sell," adds Robbie Gendels of National Cooperative Bank.


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