"Refinance" mortgage for a family member @ 2%?

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ER2023
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"Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
brad.clarkston
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Re: "Refinance" mortgage for a family member @ 2%?

Post by brad.clarkston »

Well I wouldn't call it a good idea but as long as you think about it as a gift (never loan to family) and it won't hurt your family then who's to tell you not to ?
runner3081
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Re: "Refinance" mortgage for a family member @ 2%?

Post by runner3081 »

Sounds like you want to pay off her mortgage and are fine without being paid back. If so, go for it.
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CAsage
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CAsage »

I would in your shoes. But think about making it a proper loan, and see if you can get the new mortgage secured by her condo. This would ensure you eventually get the money back, even if it's on the sale.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
JBTX
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Re: "Refinance" mortgage for a family member @ 2%?

Post by JBTX »

I suspect the 2% is taxable interest income to you. She won't get a deduction but you will pay taxes. I'd probably talk to a lawyer or attorney to see if there is a better way to structure it.
emoore
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Re: "Refinance" mortgage for a family member @ 2%?

Post by emoore »

why doesn't she just refinance? That way she owes the bank and not you.
RyeBourbon
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Re: "Refinance" mortgage for a family member @ 2%?

Post by RyeBourbon »

JBTX wrote: Wed Sep 16, 2020 1:34 pm I suspect the 2% is taxable interest income to you. She won't get a deduction but you will pay taxes. I'd probably talk to a lawyer or attorney to see if there is a better way to structure it.
Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
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Watty
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Watty »

emoore wrote: Wed Sep 16, 2020 3:11 pm why doesn't she just refinance? That way she owes the bank and not you.
+1

And then you might still be available to help her financially if she ever needs it.

Keep in mind that she is 55 so the loan likely would not be paid until she is well into retirement and maybe even 85 years old.

One problem with you holding a mortgage like that is that she might outlive you then whoever is settling your estate would have to deal with that which could generate considerable legal fees and delay being able to get your estate through probate. If appropriate one option to consider would be to update your will to forgive her the balance of the loan if you die.
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Brianmcg321
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Brianmcg321 »

Having family members owe you money is never a good idea. It changes the relationship. Thanksgiving will never be the same.

Help her refinance and pay her closing costs as a gift.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

JBTX wrote: Wed Sep 16, 2020 1:34 pm I suspect the 2% is taxable interest income to you. She won't get a deduction but you will pay taxes. I'd probably talk to a lawyer or attorney to see if there is a better way to structure it.
I wasn't thinking about structuring a loan, just handling it informally between us.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

RyeBourbon wrote: Wed Sep 16, 2020 3:18 pm
JBTX wrote: Wed Sep 16, 2020 1:34 pm I suspect the 2% is taxable interest income to you. She won't get a deduction but you will pay taxes. I'd probably talk to a lawyer or attorney to see if there is a better way to structure it.
Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
I wasn't looking to formally structure the loan, just informally between us. I did miss the mortgage deduction for her though.
Dottie57
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Dottie57 »

If I could swing it I would help my sister. Listen to her closely - she may not want to do so. There are other eays to help. Gifting money - where she has the ability to choose what to do with it, is one option.

You heart is in the right place.
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sperry8
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Re: "Refinance" mortgage for a family member @ 2%?

Post by sperry8 »

ER2023 wrote: Wed Sep 16, 2020 12:58 pm I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
Just make sure you have the lien on the property when you give her a mortgage. If she misses payments (or otherwise defaults) you can foreclose and own the property. Understand there are also closing costs and legal fees when doing this, who is paying those? I've done this for family members as well - and I've made them pay these things. You can make your own decision obviously, but need to decide who pays those fees.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282
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CAsage
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CAsage »

ER2023 wrote: Wed Sep 16, 2020 3:51 pm I wasn't looking to formally structure the loan, just informally between us. I did miss the mortgage deduction for her though.
That mortgage deduction is a myth for most people - the single standard deduction for 2020 is $12,400, so unless there are massive medical, charitable, or property tax deductions, unlikely the interest on a small loan will even be deductible. And there are generally higher proportional expenses for refinancing smaller mortgages, as there are fixed costs that have to be included in the loan (or buried in a higher rate). My Dad loaned my brother money years ago, and they kept it just an informal aggrement with payments. There are options...
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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FIREchief
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Re: "Refinance" mortgage for a family member @ 2%?

Post by FIREchief »

Making it a "real" loan and placing a lien on the property will protect both of you. The best asset protection for a house is a mortgage.
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Gill
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Gill »

Deleted
Last edited by Gill on Wed Sep 16, 2020 5:40 pm, edited 1 time in total.
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sperry8
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Re: "Refinance" mortgage for a family member @ 2%?

Post by sperry8 »

ER2023 wrote: Wed Sep 16, 2020 3:51 pm
RyeBourbon wrote: Wed Sep 16, 2020 3:18 pm
JBTX wrote: Wed Sep 16, 2020 1:34 pm I suspect the 2% is taxable interest income to you. She won't get a deduction but you will pay taxes. I'd probably talk to a lawyer or attorney to see if there is a better way to structure it.
Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
I wasn't looking to formally structure the loan, just informally between us. I did miss the mortgage deduction for her though.
I recommend against this. What if she passes? Who owns that land/home? You want to make sure you do this properly. You need to give her a mortgage, and hold the lien. You need the State to know the property is yours so long as their is a lien against it.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282
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CAsage
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CAsage »

Gill wrote: Wed Sep 16, 2020 4:02 pm
RyeBourbon wrote: Wed Sep 16, 2020 3:18 pm Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
No because it’s not acquisition indebtedness.
Gill
Isn't a refinanced mortgage deductible still, as long as the loan is secured by the property? People refinance all the time, and this would put a big brake on that industry, which I have not seen??????
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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Re: "Refinance" mortgage for a family member @ 2%?

Post by JBTX »

CAsage wrote: Wed Sep 16, 2020 4:35 pm
Gill wrote: Wed Sep 16, 2020 4:02 pm
RyeBourbon wrote: Wed Sep 16, 2020 3:18 pm Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
No because it’s not acquisition indebtedness.
Gill
Isn't a refinanced mortgage deductible still, as long as the loan is secured by the property? People refinance all the time, and this would put a big brake on that industry, which I have not seen??????
Interest is only deductible if you have enough itemized deductions to exceed the standard deduction. This is not the case for most people these days. This would only generate about $2600 a year in interest. The single standard deduction is $12,400.
HomeStretch
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Re: "Refinance" mortgage for a family member @ 2%?

Post by HomeStretch »

Consider helping her obtain a no-cost refi with a rate probably in the 2.x % range. It may cost her an extra $30/month for an interest rate that’s maybe 0.5% higher from an unrelated lender. You could gift her $360 per year to cover the incremental interest paid.
Last edited by HomeStretch on Wed Sep 16, 2020 7:12 pm, edited 1 time in total.
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JoeRetire
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Re: "Refinance" mortgage for a family member @ 2%?

Post by JoeRetire »

ER2023 wrote: Wed Sep 16, 2020 12:58 pm Is this a good idea?
No. Bad idea.
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Gill
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Gill »

CAsage wrote: Wed Sep 16, 2020 4:35 pm
Gill wrote: Wed Sep 16, 2020 4:02 pm
RyeBourbon wrote: Wed Sep 16, 2020 3:18 pm Of course the income is taxable to the OP. But if it were secured by the condo as a mortgage, would it not be deductible for her?
No because it’s not acquisition indebtedness.
Gill
Isn't a refinanced mortgage deductible still, as long as the loan is secured by the property? People refinance all the time, and this would put a big brake on that industry, which I have not seen??????
Sorry, I misstated the rule. The cash out portion is not deductible. Also, as others have stated, it’s not likely the mortgagor is able to itemize.
Gill
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CWhea1775
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CWhea1775 »

I have done this. Suggest you start here with Jonathan Clement's story;

https://humbledollar.com/money-guide/my ... or-hannah/

And then here if you want to pursue;

https://www.nationalfamilymortgage.com/

Our relative has since refinanced out of this mortgage and paid us off. In the end, the fear was that if the relative got into trouble and needed money, we could always help, but if they got into trouble and couldn't pay the mortgage, we were not going to foreclose, so we might have been out the total value of the loan.

However, service was professional, would recommend this company if you decide to do it.
LittleMaggieMae
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Re: "Refinance" mortgage for a family member @ 2%?

Post by LittleMaggieMae »

emoore wrote: Wed Sep 16, 2020 3:11 pm why doesn't she just refinance? That way she owes the bank and not you.
Possibly because the mortgage is on a condo (higher interest rates) and the loan is for a relatively small amount 125K (again, higher cost to get the lower rate if a lower rate is even offered).

If she does find a lender that will give her a lower interest rate perhaps the OP can help with the cost of the refi?
jsh
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Re: "Refinance" mortgage for a family member @ 2%?

Post by jsh »

What are you going to do if she stops paying?
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sapphire96
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Re: "Refinance" mortgage for a family member @ 2%?

Post by sapphire96 »

First off, I greatly admire your desire to help your sister. With that said, as others have stated, getting money (especially very large sums) involved with family does not pan out well, for the most part. She could refinance for a comparable rate (2.25-2.75%) to what you are offering. Another consideration is taxes — you would have to pay gift taxes for any amount you give her over $15,000 per year, or eat into your lifetime gift limit.

Again, your intentions are honorable, but I think your proposed approach has significant intangible (emotional) risks.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

Watty wrote: Wed Sep 16, 2020 3:28 pm
emoore wrote: Wed Sep 16, 2020 3:11 pm why doesn't she just refinance? That way she owes the bank and not you.
+1

And then you might still be available to help her financially if she ever needs it.

Keep in mind that she is 55 so the loan likely would not be paid until she is well into retirement and maybe even 85 years old.

One problem with you holding a mortgage like that is that she might outlive you then whoever is settling your estate would have to deal with that which could generate considerable legal fees and delay being able to get your estate through probate. If appropriate one option to consider would be to update your will to forgive her the balance of the loan if you die.
You bring up a great point about her age, however, that is also why I want to help her. I was thinking to pay the loan off and she would pay me back informally (not a structured loan). So if she would outlive me, it would all be hers - no one to pay back. I would be perfectly fine with that.
Topic Author
ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

Dottie57 wrote: Wed Sep 16, 2020 3:57 pm If I could swing it I would help my sister. Listen to her closely - she may not want to do so. There are other eays to help. Gifting money - where she has the ability to choose what to do with it, is one option.

You heart is in the right place.
You are right, she may not want my help. I genuinely want to reduce her stress and give her one less (significant) thing to worry about. I will think about other ways to help, thanks.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

sperry8 wrote: Wed Sep 16, 2020 4:00 pm
ER2023 wrote: Wed Sep 16, 2020 12:58 pm I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
Just make sure you have the lien on the property when you give her a mortgage. If she misses payments (or otherwise defaults) you can foreclose and own the property. Understand there are also closing costs and legal fees when doing this, who is paying those? I've done this for family members as well - and I've made them pay these things. You can make your own decision obviously, but need to decide who pays those fees.
I would never foreclose and own the property - if she misses the payments, there would have to be something significantly wrong. This is also why I want to do this - to give her the peace of mind of knowing that, no matter what, the house is hers.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

CAsage wrote: Wed Sep 16, 2020 4:00 pm
ER2023 wrote: Wed Sep 16, 2020 3:51 pm I wasn't looking to formally structure the loan, just informally between us. I did miss the mortgage deduction for her though.
That mortgage deduction is a myth for most people - the single standard deduction for 2020 is $12,400, so unless there are massive medical, charitable, or property tax deductions, unlikely the interest on a small loan will even be deductible. And there are generally higher proportional expenses for refinancing smaller mortgages, as there are fixed costs that have to be included in the loan (or buried in a higher rate). My Dad loaned my brother money years ago, and they kept it just an informal aggrement with payments. There are options...
Did your dad draw up legal documents for your brother, or did they just keep it as an informal agreement?
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CAsage
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CAsage »

ER2023 wrote: Wed Sep 16, 2020 8:07 pm
CAsage wrote: Wed Sep 16, 2020 4:00 pm ... My Dad loaned my brother money years ago, and they kept it just an informal aggrement with payments.
Did your dad draw up legal documents for your brother, or did they just keep it as an informal agreement?
I believe they wrote up the amount and payment plan, (signed IOU, no collateral). Oddly enough, my Dad died shortly after that and If Brother hadn't mentioned it, I would never have known (and yes, we equalized it). The assorted feedback you've gotten covers a lot of issues. IMO, the main thing is for you to think through all the possible future outcomes and make sure your plan is acceptable. Sister gets laid off or sick and can't make payments? Sister sells house? Sister dies and leaves house to someone else? Sister marries some bum and adds him to the title? Making it a mortgage gives you the money back if something happens, through a lien on the property. If your finances ensure you really don't need it, well and good.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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BrandonBogle
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Re: "Refinance" mortgage for a family member @ 2%?

Post by BrandonBogle »

LittleMaggieMae wrote: Wed Sep 16, 2020 6:24 pm
emoore wrote: Wed Sep 16, 2020 3:11 pm why doesn't she just refinance? That way she owes the bank and not you.
Possibly because the mortgage is on a condo (higher interest rates) and the loan is for a relatively small amount 125K (again, higher cost to get the lower rate if a lower rate is even offered).

If she does find a lender that will give her a lower interest rate perhaps the OP can help with the cost of the refi?
This is what I would do. A credit union should be able to do a condo mortgage and many lenders offer if at slightly higher rates. The Op can cover any closing costs and even points to buy the rate down to 2% or so. Much less headache and if the sister ever runs into difficulty, the Op can still loan/pay the mortgage for her.
nordsteve
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Re: "Refinance" mortgage for a family member @ 2%?

Post by nordsteve »

You need to be thinking about scenarios other than the happy path here.

For example, she meets someone, changes her estate plans, and that person takes over her financial affairs.

These can be good deals (my parents did this with my grandma to unlock the equity in her house) but documenting the loan is a must.
Beach
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Beach »

My grandmother refi'd my mortgage when I was in my mid 20's. I wish she would have never offered because it soured our relationship for awhile when I got laid off and struggled to make payments. I won't make that mistake for my kids/grandkids.
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Re: "Refinance" mortgage for a family member @ 2%?

Post by sperry8 »

ER2023 wrote: Wed Sep 16, 2020 8:03 pm
sperry8 wrote: Wed Sep 16, 2020 4:00 pm
ER2023 wrote: Wed Sep 16, 2020 12:58 pm I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
Just make sure you have the lien on the property when you give her a mortgage. If she misses payments (or otherwise defaults) you can foreclose and own the property. Understand there are also closing costs and legal fees when doing this, who is paying those? I've done this for family members as well - and I've made them pay these things. You can make your own decision obviously, but need to decide who pays those fees.
I would never foreclose and own the property - if she misses the payments, there would have to be something significantly wrong. This is also why I want to do this - to give her the peace of mind of knowing that, no matter what, the house is hers.
You are not thinking through this properly. You even describe my point. Something could go seriously wrong. What if, god forbid, your sister was in a car accident and can no longer work. She can no longer make the payments. You have an informal agreement and cannot foreclose. She cannot pay the bills (your mortgage or others). With the lien, you foreclose and use the sale proceeds towards your sisters medical bills. Without them she has a home, you cannot sell and you cannot use the proceeds to help her. This is just one in a long line of unknown possibilities.

What is the downside to becoming a lienholder? A lienholder has the right to foreclose. It does not mean you have to foreclose. You can waive said right if you decide the reasons are just. But you don't have to waive the right in the case that something goes seriously wrong. It is imprudent to do this deal any other way.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282
manatee2005
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Re: "Refinance" mortgage for a family member @ 2%?

Post by manatee2005 »

Beach wrote: Thu Sep 17, 2020 4:34 pm My grandmother refi'd my mortgage when I was in my mid 20's. I wish she would have never offered because it soured our relationship for awhile when I got laid off and struggled to make payments. I won't make that mistake for my kids/grandkids.
Oh boy, yeah I can see how this went wrong.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

CWhea1775 wrote: Wed Sep 16, 2020 5:48 pm I have done this. Suggest you start here with Jonathan Clement's story;

https://humbledollar.com/money-guide/my ... or-hannah/

And then here if you want to pursue;

https://www.nationalfamilymortgage.com/

Our relative has since refinanced out of this mortgage and paid us off. In the end, the fear was that if the relative got into trouble and needed money, we could always help, but if they got into trouble and couldn't pay the mortgage, we were not going to foreclose, so we might have been out the total value of the loan.

However, service was professional, would recommend this company if you decide to do it.
Thank you for sharing this.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

sapphire96 wrote: Wed Sep 16, 2020 7:06 pm First off, I greatly admire your desire to help your sister. With that said, as others have stated, getting money (especially very large sums) involved with family does not pan out well, for the most part. She could refinance for a comparable rate (2.25-2.75%) to what you are offering. Another consideration is taxes — you would have to pay gift taxes for any amount you give her over $15,000 per year, or eat into your lifetime gift limit.

Again, your intentions are honorable, but I think your proposed approach has significant intangible (emotional) risks.
I actually did not think about gift taxes for paying off a loan, thanks.
new2bogle
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Re: "Refinance" mortgage for a family member @ 2%?

Post by new2bogle »

Do you have any other siblings or family members that may get upset that they are not getting money from you?

It might be best to get your sister to refinance and then just gift her the payment every month. That should be less than $15k/year so no gift taxes are involved.
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Sandtrap
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Re: "Refinance" mortgage for a family member @ 2%?

Post by Sandtrap »

Not knowing your financial details or your sisters, this is an option (depending on your relationship).

Go to her mortage company/bank. Find out the mortage payoff. Or find out from her, "by the way. . . . . "
Then pay off the mortgage direct to the lender.
Make it a Christmas gift.
If your sister wants to repay you in some way, then talk about it after that.

j :happy
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

[/quote]
jsh wrote: Wed Sep 16, 2020 6:47 pm What are you going to do if she stops paying?
If she stops paying, it would be because something is significantly wrong (loses job, health issues). The house would be hers, free and clear, and I would be fine with that.
sperry8 wrote: Fri Sep 18, 2020 1:32 am
ER2023 wrote: Wed Sep 16, 2020 8:03 pm
sperry8 wrote: Wed Sep 16, 2020 4:00 pm
ER2023 wrote: Wed Sep 16, 2020 12:58 pm I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
Just make sure you have the lien on the property when you give her a mortgage. If she misses payments (or otherwise defaults) you can foreclose and own the property. Understand there are also closing costs and legal fees when doing this, who is paying those? I've done this for family members as well - and I've made them pay these things. You can make your own decision obviously, but need to decide who pays those fees.
I would never foreclose and own the property - if she misses the payments, there would have to be something significantly wrong. This is also why I want to do this - to give her the peace of mind of knowing that, no matter what, the house is hers.
You are not thinking through this properly. You even describe my point. Something could go seriously wrong. What if, god forbid, your sister was in a car accident and can no longer work. She can no longer make the payments. You have an informal agreement and cannot foreclose. She cannot pay the bills (your mortgage or others). With the lien, you foreclose and use the sale proceeds towards your sisters medical bills. Without them she has a home, you cannot sell and you cannot use the proceeds to help her. This is just one in a long line of unknown possibilities.

What is the downside to becoming a lienholder? A lienholder has the right to foreclose. It does not mean you have to foreclose. You can waive said right if you decide the reasons are just. But you don't have to waive the right in the case that something goes seriously wrong. It is imprudent to do this deal any other way.

Thank you for your patience and further explaining your point. I just went into this thought with a different mindset - to pay off the loan so she is free and clear. If she pays me back, great, if not (loses job, health issues), it's a gift. So there is no formal loan. It reduces her stress levels and gives her the option to enjoy life a little more. However, I completely understand your points and appreciate your explanation. I need to think through this more.
CAsage wrote: Thu Sep 17, 2020 7:40 am
ER2023 wrote: Wed Sep 16, 2020 8:07 pm
CAsage wrote: Wed Sep 16, 2020 4:00 pm ... My Dad loaned my brother money years ago, and they kept it just an informal aggrement with payments.
Did your dad draw up legal documents for your brother, or did they just keep it as an informal agreement?
I believe they wrote up the amount and payment plan, (signed IOU, no collateral). Oddly enough, my Dad died shortly after that and If Brother hadn't mentioned it, I would never have known (and yes, we equalized it). The assorted feedback you've gotten covers a lot of issues. IMO, the main thing is for you to think through all the possible future outcomes and make sure your plan is acceptable. Sister gets laid off or sick and can't make payments? Sister sells house? Sister dies and leaves house to someone else? Sister marries some bum and adds him to the title? Making it a mortgage gives you the money back if something happens, through a lien on the property. If your finances ensure you really don't need it, well and good.

This is another significant point that I completely missed. A possible scenario and one that I would definitely not be OK with.
Last edited by ER2023 on Fri Sep 18, 2020 9:08 am, edited 2 times in total.
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NYC34
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Re: "Refinance" mortgage for a family member @ 2%?

Post by NYC34 »

ER2023 wrote: Wed Sep 16, 2020 12:58 pm I have a sister who is single with a very stable, but low paying job. She is 55 and has $125k left on her mortgage (condo) at 4.25%. She is incredibly responsible, never missing a payment. I advise her financially (not that I'm an expert) and recently talked to her about refinancing her mortgage. I started to wonder about me paying off her mortgage and charging her 2% interest. I would use my $120k CD maturing in October that I have earmarked for an emergency fund (I have a total of $367k in cash right now, including this CD). The reason why I want to do it is to reduce her stress considerably and save her money, while at the same time earn me 2% interest.

To be clear, I'm not interested in making money off her - it's more about helping her. And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.

Is this a good idea? If so, is charging her 2% fair? Anything I'm not thinking about?
It sounds like you are a great brother and human. Very refreshing to see someone wanting to help.

If the bolded part is true, why not go for it?
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BrandonBogle
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Re: "Refinance" mortgage for a family member @ 2%?

Post by BrandonBogle »

NYC34 wrote: Fri Sep 18, 2020 9:04 am
ER2023 wrote: Wed Sep 16, 2020 12:58 pm And to be completely honest, if the worst happens and she can't repay it (unlikely, but possible), it wouldn't impact me horribly from a financial perspective - nor would it impact our relationship. I actually would look at it as a gift I am happy to give her. But I have no doubt she would pay me back every dime, even if she had to work two jobs. It's just the way we were raised.
It sounds like you are a great brother and human. Very refreshing to see someone wanting to help.

If the bolded part is true, why not go for it?
I agree. But if ER2023 pays the closing costs (likely around $2k or so), he will provide her all the same benefit without any risk of the unknowns, like a future husband/boyfriend on the title, etc. If some emergency happens that the mortgage cannot be paid, then ER2023 can make payments/pay off the mortgage then. However, with this, ER2023 isn't earning anything (the 2% interest). But if things ever went south, NOT making anything from this would be a good point in keeping the relationship healthy.
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Re: "Refinance" mortgage for a family member @ 2%?

Post by hnd »

some families are tough to navigate. i know this would not go well for many people I know but I also know many people that have actually done this and its gone/going very well.

We know a gentleman who owned his own company and his children now run it. He is the lender on almost every single grandchild's home at like 1-2%. I'm not sure the exact percentage. Have some gone through layoffs and what not? absolutely! have they gotten through it? Yeah. But they are tight knit and he spells out the terms completely and nothing is misunderstood.

I think you've thought through this. Have at it IMO
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Re: "Refinance" mortgage for a family member @ 2%?

Post by zie »

I've done basically this.

In 2006, I sold my house to a family member.

In 2014 they started falling behind, as of 2020, they are now a full 2 years behind in payments. They still makes payments on occasion, or smaller than required payments.

Luckily my personal financial position is one where I don't require/need that income to live or survive, so I'm doing OK, but it really sucks to do that math every year and see the debt keep creeping up. Will I ever get my money back? No clue. I don't count it in my net worth, and don't consider any of that money in any planning I do.

I could foreclose, but then where would they be? Making anyone homeless is hard, making family homeless is very hard.

So for everyone saying this is almost certainly a bad idea, I can only agree. In 2006 I probably wouldn't have listened to this advice.

If you do this, make sure you at least cover your risk *some* by getting the loan recorded with the county.

As others on this thread have said, there are good reasons to foreclose outside of them just not paying because they can't afford it.
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Re: "Refinance" mortgage for a family member @ 2%?

Post by CAsage »

Wild and crazy idea: Pay off the mortgage, and "buy" the appropriate fraction of the condo. If the mortgage is 40% of the current value, your sister reissues a grant deed to a new title, something like "Sister 60%, Brother 40%, Tenants in common". You could then allow her to live there either rent free, or for a nominal 2% interest-only payment sort of like rent on your share. This would ensure that you get your money back when the property is sold, the condo might appreciate, and you would prevent her from refinancing or adding anyone else to the title without your signature. Does complicate estate planning, you would need to plan on selling upon her death, or leaving your share to someone else (her? kids?) .... I did say it was a wild idea. Avoids the loan issue, secures her housing, and protects your $$. I've actually considered (but not deeply) doing this with a cousin who perpetually refinances for cash out, and will never get his house paid off.
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ER2023
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Re: "Refinance" mortgage for a family member @ 2%?

Post by ER2023 »

Thanks to everyone for your replies. After carefully considering all of the advice received, I have decided not to pursue paying off her mortgage at this time. I met with my sister yesterday (she has no idea I was considering this), and will continue identifying other ways to help her. Once again, I appreciate the great wisdom on this forum.
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