My Parents divorced when my Mom was 55. One of the first things she did after securing full-time employment was to purchase a condo. Despite refinancing her mortgage for a more favorable interest rate (than the outrageous balloon she originally incurred) and a shorter mortgage term she still owed $60,000 of principle when she was forced to retire at age 75. She quickly discovered with almost no accumulated savings, making ends meet on a fixed income with a mortgage was difficult.
My siblings and I began discussing how we could assist her in paying off her mortgage, then recoup our investment when she eventually sold it.
My mom met with an elder care lawyer to discuss deeding her condo to her children. I knew it had become more difficult to transfer property since President Bush had signed the Deficit Reduction Act of 2005 (this Act increased Medicaid’s look back period from three years to five), but was surprised when the lawyer flat out refused to help us. She said with my mom having virtually no savings she would be ineligible for Medicaid for the next five years until every penny of equity transferred to us had been paid to her nursing home. What if her children couldn’t come up with this money? She refused to put my mom in that situation.
We asked, “What if my mom doesn’t need nursing home care in the next five years?”
The lawyer didn’t care, she felt my mom’s condo equity should remain with my mom to cover her long term care or other expenses whenever they may occur. The discussion was over.
$60,000 split four ways was too great of an expense for my siblings and I to handle. There were spouses and grand-children to consider, child-care expenses and our own mortgages; $15,000 was a lot of money to hand over to your mother-in-law with no guarantee of ever getting it back. We explored other options such as selling the condo and having my mom rent or live with one of us, but she wasn’t ready for that. Plus, monthly rental payments cost almost as much as her mortgage expense. Instead, my brother reviewed all of her bills and cut every unnecessary expense. It literally made us sick to see how she had been taken advantage of over the years by cable companies, insurance agents, car repairmen, investment advisors, etc. When he finished her monthly expenses were manageable.
Her condo will be paid off next February and I’m confident she’ll make it.
I was reminded of my mom’s mortgage when my husband and I met with a Wisconsin title employee last week. As the representative was going over our mortgage paperwork she said something about it not being a good idea for our children to make our loan payments. Instead, she recommended they refinance the mortgage in their own names if they wanted to make payments.
After the closing was over, I asked her to explain what she meant about children refinancing the mortgage in their own names and if this was the preferred method for a child to pay off their parent’s mortgage.
She actually recommended children not pay off their parent’s mortgage and if needed do so only if:
- A written agreement was drafted by a lawyer and signed by the parent and the child prior to the child making any payments.
- All siblings were aware of the agreement and a written repayment plan was discussed and agreed upon by all siblings.
- Every mortgage payment was made with a paper trail. Never give a parent cash to make a payment.
She knows of several children (including herself) who paid mortgages and other expenses on behalf of their parents assuming they would be reimbursed from their parent’s estate only to have these repayments disputed by siblings. Lawyers were involved, the child was never reimbursed and the siblings no longer speak to each other.
Her bottom line advice on how to pay off your parent’s mortgage:
Don’t do it.
Have you or your siblings paid expenses on behalf of your parents? Has it been a favorable experience?