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Monday, September 6, 2010

When I inherit a house, do I inherit its mortgage too?

Since most people own their homes and pass all of their property (real and personal) down to their children, most estates contain a house. In this post I'm not going to discuss the wisdom - or more aptly, the lack of wisdom - of naming all of the children as joint owners of the house after the parent's death, as I've covered that in other posts. In this post I want to talk about the mortgage that is attached to the house.

If you are inheriting a house from your parents, do you inherit the mortgage as well? The general answer is no, but there is more to it than that.

The debts of the deceased must be paid before the beneficiaries receive their inheritance. The mortgage is a debt of the deceased that happens to be secured by the house. The mortgage must be paid before the house is able to be transferred to anyone else.

This is where it sometimes get complicated. The debts of an estate are paid from the residue of the estate, that is, the general resources of the estate that are not named specifically to be given to a certain person. For example, if a Will said "leave my wedding ring to Betsy and my watch to Gerald, and the rest is to be split between them", then the portion of the estate referred to here as "the rest" is the residue of the estate. The wedding ring and the watch are not in the residue.

The mortgage has to be paid out of the residue. Hopefully there are bank accounts, RRSPs, investments or other property that can be sold for cash, or a life insurance policy that names the estate and creates new cash flow. If so, there is no problem paying the mortgage, clearing the title on the house and then transferring it to the beneficiary. Other debts must be paid from the residue as well, including the funeral, income taxes, legal and accounting fees, probate fees, and any other loans or bills of the deceased.

But what if the residue of the estate is not enough to pay the mortgage? In that case, specific gifts such as the ring and the watch might also ending up being sold. Most likely, the house itself would be sold to pay debts.

Sometimes at this point, one of the children of the deceased will offer to buy the house from the estate (free of the deceased's mortgage) using his or her share of the estate as a down payment on the house. No matter what options the family may choose, the mortgage must be paid out before anyone else may own the house.


  1. This will change the industry, because the trusts' shareholders will be so upset, mortgage broker toronto

    1. Trusts don't have shareholders, they have beneficiaries. And so far it hasn't changed the industry, though trusts have been around for hundreds of years.


  2. There's a mortgage on the house and there's 3 of us. I want to keep the house do I have to pay out my sister at the value of the house of pay them what is owed on the mortgage?

    1. Well, you really haven't told me much so I'm filling in the blanks on my own. I assume all three of you own this house and that all three of you hold the mortgage. If you want to take over someone's share of a house, you have to pay them for the house.


  3. Hi Lynne
    Appreciate your insights and observations.
    Could I please run a scenario by you?
    To make a long story short, there is a beneficiary of a house that is having a difficult time qualifying to assume the mortgage of a house he inherited. However, he is able to make the payments on the existing mortgage. As executor, I would like to do him a favour and keep the mortgage in the name of the deceased, as he is able to make the payments.
    The beneficiary lives in the house and does not want to lose it or sell it. The house was not the deceased primary residence.
    My question is: What are the tax and other implications that could arise from this?
    Thank you.

  4. Hello 4 years ago we inherited a house that was worth 100k the mortgage on it was 140k. The lender did not contact us to claim money. Guarantor kept paying mortgage. 3 years later lender contacting us to tell us guarantor must be on title. It has now been 4 years since I inherited house. Now I am trying to get a mortgage and I have a broker he says lender should have called me to claim money owing but did not. They pretty much took the money till house is worth more than mortgage. Now the lender wants out. Is something sneaky going on?


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