Take over mortgage from parents

Discussion in 'Property Investment - Other' started by Chickeedee, 17th Dec, 2012.

  1. Chickeedee

    Chickeedee Member

    Joined:
    17th Dec, 2012
    Messages:
    3
    Location:
    Adelaide, SA
    So this is the saga and I would like to know all options that an accountant or lawyer might not think of.

    My husband's parents have a property that has a base value of $500K. The property has been remortgaged and there is currently approximately $70K remaining. Due to the mum having credit card debts, she is unable to maintain the mortgage repayments. The mum is employed and the dad is retired and on a pension. Both are on the mortgage but only the dad is on the title.

    The dad's idea is that the son and another daughter take over the remaining mortgage (I'm not sure if this is possible) and transfer the title over to them. I know that a title transfer ill incur stamp duty, which on this property will be about $21K. A life interest will be placed on the property, so the parents can stay there. The property will be subdivided and sold when they no longer live there.

    This possibly means that a loan of about $91K will have to be taken out. Which is getting a bit high as both parties have mortgages of their own.

    What I want to know is:

    1. Is it possible to just take over the remaining mortgage and have a title transfer occur? Would there be anything blocking the transfer since the mum has large credit card debts.

    2.Is it a better option that the mortgage gets refinanced in the dad's name alone with son and daughter as guarantors and the dad leaves the property in the will to son and daughter, so to reduce stamp duty. I know there would be CGT on that though.

    3. what other options are there that would keep costs down?

    Many thanks in advance for any advice!
     
  2. kathryn d

    kathryn d Member

    Joined:
    27th Nov, 2005
    Messages:
    5,745
    Location:
    Nova Scotia Canada
    Another option would be for the parents to use the house equity to pay off the credit cards?


    Might be other issues at play here...like a problem with spending, and the father wants no part of paying off the wife's debts?
     
  3. alexlee

    alexlee Member

    Joined:
    30th Aug, 2004
    Messages:
    11,586
    Location:
    Away
    If the son and daughter can't even afford the couple of k each on 91k mortgage, getting them involved would be a risk.

    Surely with that much equity (400k+), some sort of reverse mortgage is viable?
     
  4. Spades

    Spades Banned

    Joined:
    12th Jul, 2011
    Messages:
    1,656
    Location:
    ......
    Hi Chickeedee,
    Can we surmise how much is owing on the credit card?
    Cheers Spades.
     
  5. Terry_w

    Terry_w Member

    Joined:
    19th Mar, 2012
    Messages:
    9,610
    Location:
    Sydney, NSW
    1. You can't just take over a mortgage. Title could be transferred to the son/daughter, but he or she would have to apply for a loan of this amount.

    What is the effect of this on the parent's pension? It will be adverse, and will probably count as still having the value of the house in the bank and earning x% - look up 'deeming rules' and/or call Centrelink to run it buy them.

    All parties would need legal advice regarding such a transfer as things can turn messy down the track if one parent wants their house back and/or alleges they didn't understand what they were doing.

    2. Maybe hard to get a bank to lend with a child guaranteeing. On the passing of a house via a will there is generally no CGT event. If it is the main residence it will generally be inherited at the value at the date of death. This may be a better option.

    3. Son and daughter could pay out the loan or 'take over' loan by making the monthly repayments with the understanding this is a loan and it will come back to them out of the estate.

    Another option is to do this as a gift.

    Perhaps look at registering a caveat over title to stop them remortgaging the property. But this won't stop credit card debt.

    Life interest are complex and they are a CGT event when giving on and if your parents give up the life tenancy it would be too. It may be exempt from CGT because it is a main residence though.

    Look out for Land tax too.

    Asset protection for you - divorce/bankruptcy etc.
     
  6. weg

    weg Member

    Joined:
    9th Dec, 2007
    Messages:
    4,252
    Location:
    Adelaide
    Is it a budgeting issue?

    There is an income from the mum and a pension from the dad but they can't pay the interest (at remortgaged home loan rates) on 70K - that's under $200 pf?

    Can the dad not do 5 ot 8 hours of gardening, dog walking, or junk mail/paper delivery per week to cover this? Can they reduce some of their other expenses?

    A bit saved here and there could add up to half the repayment.

    Interest rates have dropped recently and may drop further.

    Your solutions sound drastic (and could affect the pension) for the small amount owed.
     
  7. Aaron_C

    Aaron_C Finance Broker

    Joined:
    11th Jun, 2011
    Messages:
    12,670
    Location:
    Melbourne, Victoria
    Simplest way would be for the children to help pay the mortgage. Involving transfer of mortgage/title will add unnecessary costs for little gain.
     
  8. kathryn d

    kathryn d Member

    Joined:
    27th Nov, 2005
    Messages:
    5,745
    Location:
    Nova Scotia Canada
    With many people, if they use equity to pay off credit card debt, unless the underlying issue is resolved, the credit card debts is added on again very quickly.


    Not saying this is the case here, but
    if one partner is spending money on frivolous junk, even if it is only frivolous in the other partner's opinion, that partner is not going to want to get a part time job to reduce the debt.

    I had a co-worker who almost lost his home. His wife was racking up gambling debts, without his knowledge. She hid it from him until, it almost became too late to save the house. The guy would work overtime all the time.
    They are divorced now, and he remortgaged his home, and is paying it off, all over again.
     
  9. Chickeedee

    Chickeedee Member

    Joined:
    17th Dec, 2012
    Messages:
    3
    Location:
    Adelaide, SA
    The mum refuses to disclose the full amount, but it is estimated to be approximately $30k.

    If we want to help her with the mortgage we obviously need to know her full financial situation. If she refuses to tell us, how would we get her to disclose it? Through a lawyer?
     
  10. tobe

    tobe Mortgage Broker

    Joined:
    10th Mar, 2007
    Messages:
    2,938
    Location:
    Melbourne Victoria
    Walk away.
     
  11. Ed Barton

    Ed Barton Advance Australia fair

    Joined:
    3rd Jul, 2010
    Messages:
    2,560
    Location:
    Brisneyland
    Deal with the dad. He owns the property? Let the mum go bankrupt.
     
  12. tobe

    tobe Mortgage Broker

    Joined:
    10th Mar, 2007
    Messages:
    2,938
    Location:
    Melbourne Victoria
    the credit card debt if not paid will be passed to a collections agency, who may force her into bankrupcy. others will be better qualfied to comment as to how this would affect the house title and Dad, but Id suggest her declaring bankrupcy wouldnt necessarily affect him. He might then find it hard to pay the mortgage depending on who their joint finances are set up, but thats where he would need to take specific advice and perhaps look into downsizing, or converting to a reverse mortgage etc.

    "helping" her now out of this hole just gives her a bigger spade for the next hole. Tough love, better to let her deal with the credit card by herself now than deal with the house sale later.

    The benificiaries of the will might not like this suggestion, but they aint benificiaries yet. people have the right to do whatever they like with their money, and their credit. And people have the right to marry whomever they like.
     
  13. wylie

    wylie Member

    Joined:
    29th Apr, 2005
    Messages:
    12,682
    Media:
    238
    Location:
    Brisbane Queensland
    Just a warning about reverse mortgages...

    My friend's mother-in-law took out a reverse mortgage which apparently is limited to a percentage of the value of the property. At the time her property was valued at (from memory) maybe $380K and now worth about $300K.

    So the mortgage interest is adding to the debt to the tune of about $1000 per month. Meanwhile, she has about $60K in credit card debts. She needs to get into a nursing/retirement home immediately and cannot return to her home. My friend and her husband are trying to sort it all out. She has approached the banks involved who offered the credit cards to a woman aged about 70+ with no income and has successfully had the debts reduced by about one third to one half of the total outstanding, if they are fully paid out by a deadline (fast approaching).

    (These figures are rubbery, as I cannot recall exactly, but you get the idea...)

    If they don't get things sorted soon, and the house sold, the reverse mortgage sounds like it could just keep increasing until it is more than the value of the house supporting it.
     
  14. tobe

    tobe Mortgage Broker

    Joined:
    10th Mar, 2007
    Messages:
    2,938
    Location:
    Melbourne Victoria
    Im not an expert in the reverse mortgage area, but they have to have a negative equity guarantee, so the debt cant grow to more than the house is worth. the credit cards debts might, but in this case, the credit cards are held by the wife, and the Mr holds the loan and title, so it wouldnt be an issue until his death precedes hers.
     
  15. weg

    weg Member

    Joined:
    9th Dec, 2007
    Messages:
    4,252
    Location:
    Adelaide
    wylie, spoke to someone recently about their mothers 'snowballing' reverse mortage debt.

    Good, I think if it's the only solution.

    Chickadee, what does the father say about all this? Have they defaulted?

    The other option is for them to sell, pay out their debts, and buy something cheaper by moving to a cheaper surrounding suburb, smaller place/unit.
     
  16. weg

    weg Member

    Joined:
    9th Dec, 2007
    Messages:
    4,252
    Location:
    Adelaide
    But if the house, regardless of who's name it's under is security on the cards, then it would be an issue.
     
  17. Terry_w

    Terry_w Member

    Joined:
    19th Mar, 2012
    Messages:
    9,610
    Location:
    Sydney, NSW
    Couple more points.

    If mum has not assets then bankruptcy may be a way out. Generally they wouldn't go after the house if owned solely by dad - unless much larger debt.

    But watch out if dad passes away while mum is bankrupt and she inherits... Testamentary trust may fix this if there are no questions about capacity (legal capcity).

    If you decide to pay off the cards offer the banks 1/3 of the outstanding. Most will take it, some will argue and offer 50% of the debt.

    There is no way to force your mum to disclose her personal information to you. If she has capacity issues you could try to get yourself appointed as financial guardian. But this is complex.
     
  18. Sean M

    Sean M Member

    Joined:
    2nd May, 2008
    Messages:
    203
    Location:
    Melbourne
    Sounds like a " family " problem. This can get very messy.

    Couple of things here

    1. Husband's mum has a problem with spending - this means that the credit needs to be removed/destroyed/blown up
    2. Transferring of titles will not solve the problem - as you said correctly it incurs more cost
    3. Dad wants to get rid of the problem by selling the house and it will cause centrelink issues; as you propose to sell a house for 91k ? When the true value is above 500k?

    Things you could look at:

    1. Fix the problem with the mother spending. This would involve a family intervention.
    2. Get the credit debt off the high interest rate and put it onto the house loan and get them to budget so she learns to repay that debt. She must be feeling guilt/shame, may be that she needs to understand that she has spent a bit much and that it can happen. However, it now needs to be fixed.
    3. Put in place a system to review what they are doing with their money so that they are able to live within their means.

    From what I have read I think the issue is not about taking over the mortgage. If the mother didn't have the credit card debt I would suggest that the dad would not be in a hurry to transfer the title.
     
  19. Chickeedee

    Chickeedee Member

    Joined:
    17th Dec, 2012
    Messages:
    3
    Location:
    Adelaide, SA
    All of this was started by the dad. He wants to ensure that they will have a place to live, hence securing the property by allowing us to pay off the mortgage. He wants to transfer the title to son and daughter to prevent the mum from borrowing against the house as she has already done this once before, and will undoubtedly get into more debt.

    The dad's plan is for us to secure the property and let the mum deal with the credit card debt. He believes it will be one less burden to the mum. But if the credit cards are using the property as equity, would they allow a title transfer to occur?

    Both families from the son and daughter can meet the repayments for the mortgage, and it sounds like it is best that we get a loan to cover the remaining mortgage amount. But again, I wonder if the mum's credit card debt might be an issue with a title transfer. What we do not want to do is to buy the house from the parents at market value. We would not be able to meet the repayments then.
     
  20. tobe

    tobe Mortgage Broker

    Joined:
    10th Mar, 2007
    Messages:
    2,938
    Location:
    Melbourne Victoria
    Dad already has a house. Mum cant borrow against it without his consent. the credit cards cant be repaid, or secured by the house either, usually.

    Dad could transfer the property to anyone he likes, for any price he likes, and have a life interest, but centrelink will penalise him for the actual valuation of the property.

    Selling, or transfering the house is not going to stop mum spending, and the grief involved, its just going to make Dads life harder.

    I'd suggest he takes advice on keeping seperate finances, and perhaps update his will. that is his best protection IMHO.