HELOC for parent's mortgage payoff (short term) and other expenses

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timesavor
Posts: 10
Joined: Thu Sep 27, 2007 7:12 pm

HELOC for parent's mortgage payoff (short term) and other expenses

Post by timesavor »

Hi Bogleheads:

So grateful you are here. My last post was over a decade ago and I think of the wisdom of the folks on this board a lot. Back then, I was so fortunate to have Grok and Laura and other wise souls spend their precious time to give us investment advice.

I'm writing now because my spouse and I were planning to apply for a HELOC until someone questioned that and wondered why we weren't doing a cash out refi instead. This was someone on the FICO forums. I had also run this idea by our mortgage broker who thought it sounded like a good idea (she doens't do HELOCs), but then she's a broker.

Just so you know, we're in the "sandwich" stage of life with aging parents on one end of our care spectrum and kids in high school or soon entering college on the other. One of the reasons for the HELOC need is grandma, as you'll see below. We are currently both working, but I am planning to quit soon because I must deal with some family business that has become impossible to manage while working. I am also underemployed and overstressed to the point of health issues, so this is a necessity. I plan to return to work once the family business issues are handled and my health is stabilized (which it will be w/ lower stress).

I mention the work situation because we plan to apply for a HELOC before I quit so that we can verify my employment. If it weren't for this HELOC idea, I would have quit a month or two ago. Truth be told we can almost certainly qualify with my spouse's income alone, but I'm also wanting to be on the loan for my own credit history purposes.

Anyway, I'd like to know if you think the HELOC is a decent idea, or if you think another loan product is better. And, we are also trying to figure out how much to request. Initially, we were thinking $200K for the following:

1) Pay off grandma's $100K mortgage balance to free up more of her limited monthly income for her assisted living fees. She has very little in savings and it will run out in the next few months if we don't reduce her monthly costs. She also is unable to qualify for a HELOC due to her low income (we tried). Her home is worth about 1M. If we use 100K of our HELOC to pay off her mortgage, her home would secure the loan from us and there would be a note/contract in place from an attorney. Also, she would either pay us the amount of our HELOC interest rate on the 100K each month (lowering her monthly costs), or she would pay us back, plus interest, once her house sells (lowering her monthly costs more). I am her durable POA and her successor trustee so I manage her affairs and am the one who will also be selling her house. We plan to sell her house ASAP, but this could take a year. We have to get another family member out of the house first, hence the longer time frame.

2) The other part of the HELOC would be used to do a kitchen upgrade for our home and other piecemeal improvements over time like install solar, remove a large tree (for solar to work), redo hardscape in the yard. It would also be an emergency source of funds that we would hope not to use much.

3) If grandma's home sale timeframe outlasts the short burn rate on her savings, then the HELOC could be used to bridge the gap on an emergency basis. We know that we are NOT willing to have her live with us again, having just done so for a year during Covid, unexpectedly, and causing inordinate family stress. So we need a buffer to avoid her return to our home. She can't live in her home because the person living there takes advantage of her financially and it is unsafe for her.

NOTE: The HELOC in question is a 10 year interest only loan, no fee, 2 year minimum for the no fee. I believe the repayment term following the 10 years is 15 years. It is a variable interest rate loan.

My questions:
1) Is HELOC a decent idea in our situation? We do not have a large sum in the bank for the above expenses, otherwise we would not be considering the HELOC. We have strong credit. We have substantially more equity than we would be taking out for the HELOC.
2) Does the 200K amount seem reasonable? (Is there any reason to have a higher limit, or to go closer to what we can qualify for? Like $250K or more?)
3) Any other thoughts or things you think we should consider?

Sincere thanks for reading.
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djpeteski
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Joined: Fri Mar 31, 2017 9:07 am

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by djpeteski »

I am a no debt guy, so please take this with a grain of salt.

100K is for "nice to haves" for your family. While you were working you were unable to save up and pay cash for those "nice to haves", so what you propose is to quit your job and borrow the money. That does not seem wise when you say that out loud. I can make other points, but I do not want to diminish from this one. Less income and higher debt load is a recipe for "tales of woe".

Perhaps others can comment on the first 100K for Grandma's house, but I would be a firm "no" on the second 100K.

Keep in mind, that if you do either a HELOC or cash out refi and use your income to qualify, quitting your job soon after funding could cause the loan to be called.
Big Dog
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Joined: Mon Sep 07, 2015 4:12 pm

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by Big Dog »

1) No
2) No; doing home upgrades when you are about to quit your job doesn't make sense to me. Just pay someone to cut back the tree significantly. If you really want solar, lease. (yeah, not as good a deal as purchase, but since you are not in the situation to purchase...)
3) Grandma needs to either move to a lower cost community or look into a Reverse Mortgage. (yeah, they are expensive, but they serve their purpose. My folks had one that allowed by disabled step-dad to continue to live in their primary home for years after my mom died. No hit to your credit or hit to your checkbook.)
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Watty
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Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by Watty »

timesavor wrote: Mon Jun 28, 2021 5:08 am She can't live in her home because the person living there takes advantage of her financially and it is unsafe for her.
....
We plan to sell her house ASAP, but this could take a year. We have to get another family member out of the house first, hence the longer time frame.
Most normal financing options including a reverse mortgage will not be available to her since she is not living in the home. If she is not renting the house to whoever lives there now she will not be able to get an investor loan since she does not have any rental income.

Not sure what is going on with this but if that is her house then she should sell it now.

You are really asking the wrong question about financing, you should really be asking how to get the house sold quickly.

If this is something like a problem kid or grandkid then you could likely just offer them some money(a car???) from the house sale if they are reluctant to move. It may be painful to pay them to go away but sometimes that is the best course. Get a lawyer involved if you need to. Do no make this an open ended offer, make it a one time offer if they are out of the house in 30 days.

Most housing markets are strong right now if not red hot and the house can likely be sold "as is" she can have the cash in a month or two. This would be with a normal sale and not a lowball "we buy ugly houses" deal.

If this drags on for a year then the housing market could change and it can be very difficult to sell a house in a bad house market.

Even if you can get a loan somehow that is really a bad idea since it is just enabling the bad situation to go on longer.
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galawdawg
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Location: Georgia

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by galawdawg »

timesavor wrote: Mon Jun 28, 2021 5:08 am Anyway, I'd like to know if you think the HELOC is a decent idea, or if you think another loan product is better. And, we are also trying to figure out how much to request. Initially, we were thinking $200K for the following:

1) Pay off grandma's $100K mortgage balance to free up more of her limited monthly income for her assisted living fees. She has very little in savings and it will run out in the next few months if we don't reduce her monthly costs.

2) The other part of the HELOC would be used to do a kitchen upgrade for our home and other piecemeal improvements over time like install solar, remove a large tree (for solar to work), redo hardscape in the yard. It would also be an emergency source of funds that we would hope not to use much.

3) If grandma's home sale timeframe outlasts the short burn rate on her savings, then the HELOC could be used to bridge the gap on an emergency basis. We know that we are NOT willing to have her live with us again, having just done so for a year during Covid, unexpectedly, and causing inordinate family stress. So we need a buffer to avoid her return to our home. She can't live in her home because the person living there takes advantage of her financially and it is unsafe for her.

My questions:
1) Is HELOC a decent idea in our situation? We do not have a large sum in the bank for the above expenses, otherwise we would not be considering the HELOC. We have strong credit. We have substantially more equity than we would be taking out for the HELOC.
2) Does the 200K amount seem reasonable? (Is there any reason to have a higher limit, or to go closer to what we can qualify for? Like $250K or more?)
3) Any other thoughts or things you think we should consider?

Sincere thanks for reading.
No, do not get a HELOC. There are several other things that must, in my opinion, take place first.

1. Instead of hiring an attorney to do a note/contract if you pay off Grandma's mortgage, you/she needs to hire an attorney to do what is necessary to remove the person who takes advantage of her financially and put the house on the market. If she cannot afford it, it should be sold ASAP.

2. Without knowing more, your plan to quit your job but first take out a $100k+ HELOC to pay for a kitchen upgrade, a solar system, yard hardscape upgrades/renovation and to use as an emergency fund since you don't have funds saved appears to be extremely unwise. These are all "upgrades" that appear unnecessary. If you want more informed feedback on your contemplated use of a HELOC, more financial information would be important, such as HHI (assuming you are unemployed), investments, cash in bank, other debt, etc.

Good luck. Sounds like some difficult personal situations all around.
neverpanic
Posts: 1023
Joined: Sun May 10, 2020 12:26 am

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by neverpanic »

timesavor wrote: Mon Jun 28, 2021 5:08 am Hi Bogleheads:

So grateful you are here. My last post was over a decade ago and I think of the wisdom of the folks on this board a lot. Back then, I was so fortunate to have Grok and Laura and other wise souls spend their precious time to give us investment advice.

I'm writing now because my spouse and I were planning to apply for a HELOC until someone questioned that and wondered why we weren't doing a cash out refi instead. This was someone on the FICO forums. I had also run this idea by our mortgage broker who thought it sounded like a good idea (she doesn't do HELOCs), but then she's a broker.

Just so you know, we're in the "sandwich" stage of life with aging parents on one end of our care spectrum and kids in high school or soon entering college on the other. One of the reasons for the HELOC need is grandma, as you'll see below. We are currently both working, but I am planning to quit soon because I must deal with some family business that has become impossible to manage while working. I am also underemployed and overstressed to the point of health issues, so this is a necessity. I plan to return to work once the family business issues are handled and my health is stabilized (which it will be w/ lower stress).

I mention the work situation because we plan to apply for a HELOC before I quit so that we can verify my employment. If it weren't for this HELOC idea, I would have quit a month or two ago. Truth be told we can almost certainly qualify with my spouse's income alone, but I'm also wanting to be on the loan for my own credit history purposes.

Anyway, I'd like to know if you think the HELOC is a decent idea, or if you think another loan product is better. And, we are also trying to figure out how much to request. Initially, we were thinking $200K for the following:

1) Pay off grandma's $100K mortgage balance to free up more of her limited monthly income for her assisted living fees. She has very little in savings and it will run out in the next few months if we don't reduce her monthly costs. She also is unable to qualify for a HELOC due to her low income (we tried). Her home is worth about 1M. If we use 100K of our HELOC to pay off her mortgage, her home would secure the loan from us and there would be a note/contract in place from an attorney. Also, she would either pay us the amount of our HELOC interest rate on the 100K each month (lowering her monthly costs), or she would pay us back, plus interest, once her house sells (lowering her monthly costs more). I am her durable POA and her successor trustee so I manage her affairs and am the one who will also be selling her house. We plan to sell her house ASAP, but this could take a year. We have to get another family member out of the house first, hence the longer time frame.

2) The other part of the HELOC would be used to do a kitchen upgrade for our home and other piecemeal improvements over time like install solar, remove a large tree (for solar to work), redo hardscape in the yard. It would also be an emergency source of funds that we would hope not to use much.

3) If grandma's home sale timeframe outlasts the short burn rate on her savings, then the HELOC could be used to bridge the gap on an emergency basis. We know that we are NOT willing to have her live with us again, having just done so for a year during Covid, unexpectedly, and causing inordinate family stress. So we need a buffer to avoid her return to our home. She can't live in her home because the person living there takes advantage of her financially and it is unsafe for her.

NOTE: The HELOC in question is a 10 year interest only loan, no fee, 2 year minimum for the no fee. I believe the repayment term following the 10 years is 15 years. It is a variable interest rate loan.

My questions:
1) Is HELOC a decent idea in our situation? We do not have a large sum in the bank for the above expenses, otherwise we would not be considering the HELOC. We have strong credit. We have substantially more equity than we would be taking out for the HELOC.
2) Does the 200K amount seem reasonable? (Is there any reason to have a higher limit, or to go closer to what we can qualify for? Like $250K or more?)
3) Any other thoughts or things you think we should consider?

Sincere thanks for reading.
Wow, this is a tough situation. Your stress is palpable. You're doing a lot of things right. Setting and enforcing clear boundaries is important and while we all love our parents, it's unreasonable to allow them to introduce stress that lessens your quality of life if you have the ability to avoid it.

Grandma has a $1M home and needs the income. I'm anti-reverse mortgage, except in the narrowest of cases - like Grandma's. But based on what you've written, it sounds like she should sell, which would take care of 2 problems at once, even though - legally - the house expense and the leech are separate issues.
I'm also wanting to be on the loan for my own credit history purposes
You're allowed to feel what you want, but at this stage of life, this has no actual value to you. You said you already have great credit. There's no bonus prize beyond that.

1) No
2) No no no
3) SELL (preferred) or reverse mortgage

Lastly, I am not law enforcement nor a licensed anything, but I have dealt with evictions and crazy people. If Grandma's safety is somehow tied to ongoing financial support of the leech, that is a pretty emergent concern. Sell the house, downsize, and the leech has 30-60 days to go find their own housing.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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lthenderson
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Location: Iowa

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by lthenderson »

My first option would have been to get a reverse mortgage. But if that is no longer an option due to her not living in the house anymore, I would look into selling the house.

I'm risk adverse and obtaining more debt followed by going down to a single income seems like a recipe for disaster if your spouse loses their job or ability to work at a job. Without more financial details, it is hard to support this route.
Topic Author
timesavor
Posts: 10
Joined: Thu Sep 27, 2007 7:12 pm

Re: HELOC for parent's mortgage payoff (short term) and other expenses

Post by timesavor »

Thanks to all who replied. Your input helped me reduce the amount we asked for on the HELOC and to re-think doing any remodeling or non-essential spending right now. But we still did the HELOC because:
1) We can't get "leech" out of house without a bit of a legal maneuver, which I am undertaking,
2) That means there is still a time lag before we can sell the house.
3) Mom can only fund part of her care because her savings just ran dry.
4) Despite the expense, we don't want to move her right now because I want to focus on selling her house and getting "leech" out.
5) Once house is sold she can afford current care just fine.

She is in the least expensive situation we can find right now. Living with us is not an option.

Thanks again.
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