Have you inherited a property with an existing mortgage? An inheritance can quickly become a financial burden if you do not act strategically. We will show you in 5 steps how to maintain control and avoid costly mistakes.
Chat with ImmoGPT for free now.
With access to Google, BORIS, and Deep Research.
The topic briefly and concisely
You only have six weeks to reject a potentially over-indebted inheritance; otherwise, you will be personally liable for the mortgage.
A professional market value appraisal is crucial to determine the true value of the property and can significantly reduce your inheritance tax burden.
In an inheritance community, all decisions must be made unanimously; a partition auction should be avoided as the last and worst option.
Inheriting a house – is this a reason for joy or concern? This question becomes particularly pressing when the property is encumbered with a mortgage. As an heir, you take on not only the assets but also the debts and are liable with your personal assets. You have only 6 weeks to decide whether to accept or reject the inheritance. This guide offers you a clear strategy to analyze the situation, weigh your options, and find a financially viable solution, whether through sale, refinancing, or continuing the loan.
Step 1: Decide on acceptance or rejection within 6 weeks
The most important deadline in the case of inheritance is only six weeks. Within this time, you must decide whether to accept or decline the inheritance. If you miss this deadline, the inheritance is automatically deemed accepted – including all debts. To make an informed decision, you must immediately draw up a balance sheet: compare the real estate assets with the liabilities, particularly the remaining mortgage debt. Contact the deceased's bank to find out the exact amount of the remaining debt, the interest conditions, and the monthly rate. Bear in mind that by accepting the inheritance, you are liable for the mortgage with your entire personal assets. A renunciation at the probate court is only sensible if the debts exceed the value of the property and other assets. This decision is irreversible and leads to the loss of any claims, including the compulsory portion. Once the decision to accept has been made, the next important administrative step follows.
Step 2: Legal protection through land register correction
Once you have accepted the inheritance, you are legally the new owner. The land register is thus incorrect and needs to be corrected. You are legally obliged to apply for a land register correction. This can save you significant costs: If you submit the application within two years of the inheritance, the transfer is free of charge. If you miss this deadline, fees will be incurred, which are based on the value of the property. For a market value of €250,000, costs of around €450 can quickly arise. For the application, you usually need a certificate of inheritance or a notarised will. Clarify early on what needs to be considered for an inherited property to avoid missing deadlines. Once the legal foundations are established, the management of the inherited mortgage comes into focus.
Step 3: Managing the Mortgage – 4 Options for Your Finances
As a new debtor of the bank, you must develop a strategy for ongoing financing. You essentially have four options, depending on your financial situation and goals:
Continue loan agreement: Enter the existing loan contract and continue making the monthly payments. This option makes sense if the contract was concluded years ago at favourable interest rates.
Consider refinancing: You can try to replace the existing loan with a new one offering better terms. While refinancing can reduce the monthly burden by 5-10%, it depends on the bank's approval.
Sell the property: Selling is often the simplest solution to fully repay the mortgage. The proceeds from the sale are used to settle the outstanding debt with the bank; the remaining amount is your actual inheritance.
Fully repay the mortgage: If you or the community of heirs have enough capital, immediate repayment of the entire outstanding debt could be an option. This ends interest payments and provides immediate financial freedom.
The choice of the right strategy heavily depends on the value of the property. Therefore, be well-informed about current property financing and loan interest rates. The valuation of the property is also crucial for determining the applicable taxes.
Step 4: Optimise Tax Burdens
Reduce inheritance tax through accurate property valuation
The tax office often determines the value of your inherited property for calculating inheritance tax using standardised methods, which can lead to an inflated valuation. However, you have the right to demonstrate a lower, more realistic value through a qualified valuation report, potentially reducing your tax burden by up to 20%. This is particularly important if the value of the property exceeds the high personal allowances (e.g. €400,000 for children, €500,000 for spouses). An impartial report is the basis for fair taxation and highlights the role of valuations in inheritance. A data-driven assessment from Auctoa provides a reliable foundation for this.
Avoid capital gains tax on sale
If you plan to sell the property, you must consider the speculation period. Tax is payable if less than ten years have passed between the original purchase by the deceased and your sale. Thus, the period does not start with the inheritance. An exception is made for personal use: If the property was occupied by you or the deceased during the year of sale and the two preceding years, the tax is waived. These regulations become even more complex when several people inherit jointly.
Step 5: Special Case of Heir Community – Resolving Conflicts and Avoiding Forced Auction
In an inheritance community, all decisions regarding the property must be made unanimously. This often leads to conflicts, as one heir may want to sell, another to rent out, and a third to move in themselves. If the co-heirs cannot agree, the final resort is often a partition auction – a special form of foreclosure auction. This procedure has significant drawbacks: the proceeds are often 15-30% below market value, the process costs are high, and the duration often exceeds a year. Therefore, the partition auction should be avoided at all costs. A better alternative is the private sale of the house from the inheritance community. A neutral, data-driven valuation by Auctoa can serve as an objective basis for discussion here and helps achieve a profitable agreement for all parties involved.
Conclusion: A structured plan is the key to success
An inherited property with a mortgage is a complex financial project that requires careful planning. Act quickly to avoid missing the 6-week deadline for renouncing the inheritance. Secure your legal position through land registry correction and develop a clear strategy for the mortgage. A professional property valuation is your most crucial tool in this regard: it protects you from excessive inheritance tax and forms the basis for all further decisions, especially in an heir community. A data-driven approach transforms uncertainty into a clear action plan.
geerbte-immobilie-mit-hypothek-was-nun
Additional useful links
Bundesfinanzministerium provides comprehensive information on inheritance and gift tax.
Bundesfinanzministerium provides the law for adjusting the inheritance and gift tax law to the jurisprudence of the Federal Constitutional Court.
Bundesfinanzministerium explains the application of regulations for the valuation of real estate within the framework of inheritance and gift tax.
Verbraucherzentrale Hamburg offers a brochure on the topic of property pensions.
Statistisches Bundesamt provides information on construction prices and real estate price indices.
Statistisches Bundesamt provides tables on house prices and land prices.
Amtsgericht München provides guidance on the registration of succession.
FAQ
What is the first step if I inherit a property with a mortgage?
The very first step is a quick and accurate inventory. You only have six weeks to disclaim the inheritance. Get an overview of all the assets and liabilities of the deceased, especially the exact amount and terms of the mortgage.
Am I personally liable for the mortgage?
Yes. When you accept the inheritance, you enter the legal succession of the deceased. This means you are liable for the debts not only with the inherited assets but also unlimitedly with your entire personal assets.
What is an inheritance community and what does it mean for the mortgage?
A community of heirs is formed when there are multiple heirs. All heirs become joint owners of the property and joint debtors of the mortgage. The bank can hold each individual heir accountable for the entire debt (joint and several liability), regardless of the size of their inheritance share.
How can I reduce the inheritance tax on the property?
The inheritance tax is based on the market value of the property. The tax office often uses flat-rate values, which can be too high. With an independent market valuation report, like the one offered by Auctoa, you can demonstrate a lower, realistic value and often significantly reduce the tax burden.
What is a partition auction and why should I avoid it?
The partition auction is a judicial auction of the property that any co-heir can request if the community of heirs cannot reach an agreement. It should be avoided as the price achieved is usually far below market value and high court and appraisal costs are incurred, further reducing the proceeds.
Do I have to sell the property to pay off the mortgage?
No, not necessarily. Selling is a common option. Alternatively, you can take over the existing loan agreement, aim for refinancing under better conditions, or fully pay off the mortgage with available capital (from inheritance or private funds).
