Financing Mom’s Retirement AND buying her house - Posted by Rand Robinson
Posted by Rand Robinson on March 18, 2002 at 10:58:56:
I would really appreciate informed advice for the following problem:
My 70-year old mother, who is in great shape but has no pension & must buy her own med insurance/care, owns a @$770,000 house which I, her son and simple civil servant, can not properly afford but would like to one day have/own for his wife and 1-2 children. My mother lost most of her portfolio to the markets in past two years, no longer wishes to stay in her house much longer, but has no ‘financial footing’ left except the value of her house. It has been suggested by her broker–who shares big responsibility for losing her life savings and whom i can’t easily trust-- for her to take a home equity loan of @$100,000 to get capital working back in the market. But for a 70-year old retiree, i’ve also heard that, between paying home equity loan’s interest rate and having to count on “high returns” from the stock market (i.e, greater than 10% consistently)to meet her loan payments, this would be a very bad idea, making her very vulnerable? Can I get your(plural) second opinions about this idea of my mother taking a home equity loan on her own?
If it IS a poor idea, could i, who has a better credit profile but couldn’t qualify for a $750,000 loan, take a loan on her behalf in this regard…?
Is there not another method whereby she can sell her house to me, she takes @$XXX,000 proceeds to conservatively invest @20 years of retirement, get the house rented (estimated annual income from rent @$40,000/year), and make me responsible for a first (or second?–does she have an interest-only first one? i get confused) mortgage of, say $250,000. If, at 7.5%, the $250,000 mortgage would cost me @$18,775 annually. (A second $500,000 mortgage would cost $37,000/year at 7.5%. That would make for an annual liability of @$55,000/year in mortgage payments) To meet these payments, as i don’t make much money, my mother agrees to assist in subsidizing annual payments for the $250,000 mortage by, say, giving me $10,000/year, which comes out of interest generated from $500,000 cash estate she now has. Rent is estimated at $40,000 which i would receive since the house is sold to me. That then makes the $5-6,000 balance in mortagage payments that I would have to come up with. But where could a downpayment come from?
Does This Please Make Any Sense, Or Could YOu please straighten me out? The two objectives are to finance my mother’s retirement while putting me in a position to one day own her house.