Property Transfer Through Inheritance: Mortgage Implications in Quebec

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Inheriting a mortgaged property in Quebec

The transfer of property through succession is a process governed by the Civil Code of Quebec. When an owner dies, their immovable property is transmitted to their heirs according to the provisions of their will or, in the absence of a will, according to the rules of legal devolution (art. 653 and following of the C.C.Q.). The heir who receives a property encumbered by a mortgage inherits not only the asset but also the obligation to repay the mortgage loan. This transfer involves legal, financial, and tax steps that the heir must understand to make informed decisions.

Steps in the succession property transfer

Obtain the declaration of transmission: The notary prepares a declaration of immovable transmission identifying the deceased, the heirs, and the transferred property. This document is published in the Quebec Land Register to formalize the property transfer.
Verify the existing mortgage: Obtain the mortgage statement from the lender to know the balance, rate, remaining term, and loan conditions. Check if loan insurance covers the balance or if obligations remain to be assumed.
Contact the lender: Inform the lender of the death and your intention to keep the property. The lender will indicate the steps required for loan assumption or direct you toward refinancing.
Qualify for the mortgage: Whether for assumption or refinancing, the lender will assess your repayment capacity. Prepare your income proof, credit report, and financial information. The OSFI stress test applies.
Formalize the transfer with the notary: The notary will finalize the property transfer, the mortgage assumption (or new loan), and publish the deeds in the Land Register. All fees will be detailed in the notary's account.

Assumption vs refinancing: which option to choose?

Assuming the existing mortgage means taking over the loan under the same conditions as the deceased. This is advantageous if the rate is lower than current market rates, as the heir benefits from more favorable conditions. However, the lender is not obligated to grant the assumption and will assess the heir's financial capacity. Refinancing, on the other hand, involves taking out a new mortgage to repay the old one. It allows choosing new conditions (term, amortization, lender) and withdrawing equity if needed to cover succession costs or other needs.

Transfer duty exemption

In Quebec, real estate transfer duties (welcome tax) are normally payable on any property transfer. However, section 20 of the Act respecting duties on transfers of immovables (R.S.Q., c. D-15.1) provides several exemptions, including transfers between direct ascendants and descendants. Thus, a transfer from a parent to a child or from a grandparent to a grandchild is generally exempt. The transfer between spouses is also exempt. This exemption can represent significant savings: on a $400,000 property, transfer duties would be approximately $5,500 without the exemption.

Tax implications for the heir

The heir is not personally taxed upon receiving the property. Capital gains tax, if applicable, is paid by the deceased's estate on their final tax return. The heir's cost base for the property is generally the fair market value at the time of death (except for a spousal rollover under s. 70(6) ITA). When the heir eventually sells the property, the capital gain will be calculated as the difference between the sale price and that fair market value. If the heir uses the property as their principal residence, they may designate that period for the principal residence exemption.

The mortgage broker's role in succession transfers

A mortgage broker is a valuable ally for an heir who must manage a mortgaged property. The broker can quickly assess whether assumption or refinancing is a commonly preferred option, shop rates from multiple lenders, help prepare the financial qualification file, and coordinate the process with the notary and lender. For heirs who have never been homeowners, the broker provides essential educational guidance to understand the responsibilities and costs associated with property ownership. Contact a mortgage broker as soon as possible after the death to avoid unnecessary delays in the transfer process.

Frequently Asked Questions

Do I have to pay the welcome tax if I inherit a property?

In most cases, no. Section 20 of the Act respecting duties on transfers of immovables (R.S.Q., c. D-15.1) exempts transfers between direct ascendants and descendants (parent-child, grandparent-grandchild). The transfer to a spouse is also exempt. However, transfers between siblings, uncles and nephews, or other relatives do not benefit from this exemption. Verify with your notary.

Can I simply continue paying the deceased person's mortgage?

No, simply continuing payments is not sufficient. The mortgage is a personal contract with the deceased. It is necessary to formalize the situation either by officially assuming the loan (with lender approval, who will assess your financial capacity) or by refinancing in your name. The estate liquidator must facilitate this transition and the lender will be notified of the death.

How does mortgage assumption by an heir work?

Assumption means the heir takes over the loan under the same conditions as the deceased (same rate, same remaining term, same amortization). The lender must approve the assumption by evaluating the heir's creditworthiness. If the heir does not qualify, they will need to refinance or find a co-borrower. The advantage is preserving a potentially favorable rate if market rates have increased.

What costs should I expect for transferring an inherited property?

The main costs include notary fees for the succession transfer deed ($1,000 to $2,500), Land Register publication fees (approximately $100 to $200), property appraisal fees if required by the lender ($300 to $500), legal and file fees for loan assumption or refinancing, and possibly mortgage brokerage fees. In most cases, transfer duties are exempt between parents and children.

What happens if I don't want to keep the inherited property?

You can ask the liquidator to sell the property as part of the estate settlement. The sale proceeds will first be used to repay the mortgage balance and sale costs, then the remainder will be distributed according to the will or legal devolution rules. You can also renounce the succession if debts exceed assets, but this decision affects the entire estate, not just the property.

Am I taxed on the inherited property?

The heir does not pay tax at the time of receiving the inheritance. It is the deceased's estate that is taxed on the capital gain (unless it is the deceased's principal residence or the transfer is made to a spouse). However, when you eventually sell the property, your capital gain will be calculated based on the fair market value at the time of the deceased's death (your cost base) and the selling price.