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Email this10:08 am
May 5, 2014
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Hi. I'm not sure if anyone has experience with this, but I was hoping for some initial advice. My siblings and I have inherited my parent's home. Ideally, 2 of us would like to continue living in the home and buy out the other 3. Realistically, I don't think the two buyers have the income for the remaining mortgage unless the house is turned into an income property, making the basement an apartment.
Wondering if we could do a reverse mortgage to give my sibling's some money to hold them over and allow us to do the renovations.
Or any other solutions that you can think of? I'm not very knowledgable about this, but really want to keep my parent's home.
Any advice or comments would be appreciated.
Thanks
LIsa
9:58 pm
December 23, 2011
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Don't do it. Find another way. You will pay a lot of interest and it is age based.
7:31 am
April 6, 2013
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Reverse mortgage rates are high. The current rates for the CHIP Home Income Plan (available only to those 55 years and older) are around 5% to 6%.
Keep in mind that at 5% per year compounded, the loan balance will double in about 14.2 years. At 6%, the balance will double in 11.9 years.
Someone wrote that it may take people 25 years to pay off their home. With a reverse mortgage of 50% of their home value, they would essentially lose it in about half that time.
11:57 am
October 21, 2013
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I agree, a reverse mortgage is not the right solution, if for no other reasons than the high cost.
Basement apartment sounds much better, if you are in a location which attracts renters. Don't forget that there are upkeep costs involved in both the rental and the house itself, and there will be times when you are without a tenant for a month or two or three. Can the occupants afford occasional major expenditures such as new roof, furnace, etc., or how will that be handled amongst you? Even creating an apartment will likely cost money.
Can the other 3 of you give the 2 who are in the house a mortgage where they just have to pay the interest? It would be like having a GIC, you just get the interest, but hopefully the property value goes up, and, over time, the cost of a mortgage would not be so high relative to income, so that the occupants could start paying down the principal. Perhaps you could set up an arrangement where the occupants only pay a share of the principal at present, which gradually increases. You would need to consult a lawyer in order to draw up an arrangement that protects everyone.
Another concern, however, would be if interest rates went up.
Is there room for a housemate for the 2 who remain? How urgently do the other 3 want their share?
Good luck!
5:43 pm
February 17, 2013
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I would make it official. The new thing I've heard about these days is a joint mortgage. As long as the pair that want to move in are employed and qualify, I would sever all ties with the other 3 and make it legal. You would only have to take out a mortgage for 3/5 of the value of the house to pay off the other 3 if all shares are equal. Each of the pair remaining in the house would be responsible for half the mortgage each. Life has a funny way of throwing unexpected curve balls at you. If the other 3 carry the mortgage for you and something unexpected happens that cause you to have to sell, or the house burns down or there's a natural disaster, they would be looking at sharing in the profit, or being paid out with interest or who knows what. What if you decide to sell in 10 years and they demand a share of the profit? If you decide to make extra payments or pay it off early problems could appear. With a bank, the rules are clearly spelled out for such occurrences. Make it legal and binding. One thing I have learned, when it comes to money and inheritances, people do crazy things. Good luck and let us know what you end up doing.
6:51 pm
April 6, 2013
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eanne05 said
My siblings and I have inherited my parent's home. Ideally, 2 of us would like to continue living in the home and buy out the other 3. Realistically, I don't think the two buyers have the income for the remaining mortgage unless the house is turned into an income property, making the basement an apartment.
That statement sounds like a sign of financial danger. A 2/5 or 40% downpayment is quite extraordinary. I think that if one can't afford the mortgage after a 40% downpayment, then the place is way more house than one should take on.
Is it really worth the risk?
9:38 pm
October 21, 2013
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I think Norman1's warning is well placed.
Oftentimes, there is an emotional attachment to a family home, and understandably people do not want to let go of it. But home ownership has to be decided on other grounds.
Please write your comments in the forum.