Help parents refinance mortgage

[skives]

My parents are asking my wife and I to help them refinance their mortgage by co-signing their mortgage. They don’t have the reserves to refinance their mortgage with our help.

What do you guys think about this and what should I know know before deciding?

[disneysteve]

Lots of questions.

Why are they refinancing now? What made them wait until rates had climbed so much in recent months to ask you this? What is their current loan and how far into it are they?

Why can't they refinance on their own? What sort of financial trouble are they in?

I'm sure you know this but co-signing means you become 100% responsible for this loan. If they make a late payment, it affects YOUR credit score. If they tell you they're making the payments and they aren't, it wrecks YOUR credit score. You are fully responsible. Are you okay having to pay their loan if something doesn't work out on their end? Can you afford that without jeopardizing your own financial well being?

What does your wife think? Is she okay with it?

Personally I'd find any other way possible to help them if they're struggling but to do so in a way that doesn't potentially put you and your wife at risk the way co-signing does.

[Jluke]

Probably not a good idea to co-sign.

plus you want to be done with your mortgage so why would sign for another one?

is the angle that one day you will inherit this house?

you definitely do not want to deplete your EF now if you could be on the hook for two mortgage payments.

comments above based on limited info and some guesswork.

[skives]

They are refinancing now because they have some debts they want to consolidate down into one payment. They also want to get their property taxes included into their mortgage payment.

they currently have two mortgages. They have been talking to Chase Bank for a couple months about doing this. My dad was thinking about it and got a cold call from a guy at Chase Bank.

Not sure of their current rate but they said they had 20 years left on it.

They can’t refinance on their own because they don’t have the reserve funds needed. That’s what my dad told me.

Currently my brother who can’t work according to his neurologist lives with them along with his daughter ever other week. My brother lost his wife 3 months ago and hasn’t worked in two years. My brother has been divorced twice and like I said his 3rd wife died 6 months after they got married. So my parents have helped him with divorces and custody battles and when he made mistakes when he was a teenager. The early stuff and the first marriage and maybe some over spending caused my parents to file for bankruptcy about 14 years ago. My brother is currently waiting on decisions for disability for himself and his late wife.

My wife and I have talked and we would like my parents to be able to live in their home till they pass or are no longer able to but no we could not afford their mortgage payment if they didn’t make them.

I feel really bad for my parents but also really worried about doing this. I feel like as I am their son I need to help.

The angle is one day we would inherit the house.

what other ways can I help them? They really do not want to sell their home.

any other questions just ask and I’ll try to answer.

[Jluke]

So debt consolidation and they want an escrow account for their mortgage.

Separating the two:

did they ask existing mortgage company if they could start escrow with the current loan?


what can you do to help?
If they choose a refinance to most likely a really higher rate then maybe you can gift them money to lower the loan amount.

but moreso consider if a refinance is even a good move for them.

[kork13]

I would approach it from a different direction, similar/in addition to Steve's questions.
- What would have to be different in their financials for them to be able to refi without you?
- What brings them to refi right now? Can it wait?
- What would your finances look like if you had to assume responsibility for paying their mortgage on your own?

Offhand, I'd call that a hard no. The specific situation could possibly moderate that response a bit.... But even if it really did make sense for you to do, I would insist that your name also be added the deed -- you shouldn't have responsibility for the loan if you're not entitled to a place position of ownership on the deed.

[skives]

I believe our names would be added to the deed as well.

[disneysteve]

we could not afford their mortgage payment if they didn’t make them.

THIS is the answer to your question.

Co-signing makes this mortgage YOUR responsibility. If you can't afford to carry that mortgage, you should not co-sign the loan.

How else can you help them? You say they can't refinance because they don't have the reserve funds. I'm not entirely sure what that means but could you lend/gift them the money needed for them to meet the requirement?

Is refinancing even a wise idea? You say they want to consolidate debts. What sort of debts? They've already gone bankrupt once and not all that long ago. What significant debts have they accumulated in the past 14 years? Would it be better for them to focus on dealing with those debts instead of rolling them into their mortgage? Hard to say without any details.

What is their income situation? Do they still work? Are they living below their means? Do they have adequate savings for emergencies and the future? How old are they?

[skives]

They don’t have reserve funds to refinance on their own. What I mean is basically collateral.

the debts they have are medical and attorney fees from helping my brother with custody his daughter.

They are in their mid and late 70s. Not longer work and their income is $5,300 a month. The new mortgage would be $2,500 a month.

how do I go about telling them no if that is our decision when they would do anything to help us?

[kork13]

Wow, okay, you responded while I was writing my earlier post, so I didn't initially see the extra info... There are ALOT of red flags here, and not only would I strongly discourage you from cosigning with your parents.... They should not even be trying to refi right now, unless their payments are completely unaffordable & they need to get their payment down, which would stretch 10 years of remaining payments out across 15-30 years... at significant expense.

The fact that their bank cold-called them offering a refi out of the kindness of their heart () is red flag enough. I wouldn't want to bank with them, and I'd bet they probably aren't even offering the best available terms.

Your parents' financial history is concerning, but if they're at least reasonably well afloat right now, there's no reason to fix what ain't broke. And to consolidate other debts into their home?? Woof, always a bad idea, and a sure sign of financial irresponsibility.

But worst of all, as Steve said, you say yourself that you couldn't afford their payment if they didn't pay it, so that's the end of the conversation right there. No assurances from them or anybody else can overcome the fact that if something went sideways for them, it would sink you & your family. Absolutely unacceptable, and (no offense intended) shame on them or anyone else who might try to pressure you after stating that fact.

The best way you can help them would be to help coach them in how to stabilize their finances & get onto a better foundation. Get rid of whatever other debts they have, get expenses well under control, and look around at how they could either increase income or reduce expenses (without simply pushing it down the road with a refi).

Also ensure that brother dear isn't leeching off of their kindness. 2 years unemployed is a pretty sorry excuse, especially if you have kids you're responsible for. If there's disability there, focus on getting it validated to get the SSDI, but in the meantime do SOMETHING that is within capability to provide for yourself & your kids. It becomes a self-fulfilling prophecy if you believe you can't do anything, then you never will.

[Petunia 100]

They don’t have reserve funds to refinance on their own. What I mean is basically collateral.

the debts they have are medical and attorney fees from helping my brother with custody his daughter.

They are in their mid and late 70s. Not longer work and their income is $5,300 a month. The new mortgage would be $2,500 a month.

how do I go about telling them no if that is our decision when they would do anything to help us?

The home is the collateral; that's what a mortgage is.

Really, what this boils down to is the lender is not confident they can make the payments. If that turns out to be true, then you will have to do it.

I suggest you offer to sit down with your parents and go over all their financial details. Given that interest rates are higher now than they have been in years, this new mortgage may not even make sense for their situation.

[disneysteve]

their income is $5,300 a month. The new mortgage would be $2,500 a month.

Their payment will be 47% of their income. HELL NO!

[kork13]

I think they need to negotiate to save up cash, then negotiate the medical & attorney debts down by offering a single cash payment. That would clean up their debt picture, and put them in a more secure place financially. A refi costing half of their limited income is NOT in anyone's best interest except the bank's.

[corn18]

A couple of thoughts.

If the brother is still alive when the parents die and it comes time to split up the estate, you will not get the house without a fight even if you are on the deed. Been there, seen that. My Aunts and Uncles were fighting over pots and pans when my grandmother died. And they were PO's when my parents did not give them their share of the duplex grandma had lived in with us for 30 years, with us paying for it and taking care of her. So whatever money you might decide to throw at this, consider it gone with no chance of recovery.

$2500 is a ridiculous mortgage. Do they live in a HCOL area or a mansion?

The root of the problem is too much expenses and/or not enough income. Help them fix one of those. Where does the other $2,800/mo go?

Why do they think you can help them?

[Fishindude77]

A re-fi will probably just dig their hole deeper. Can't borrow your way out of debt.
Sounds like the perfect case for the Dave Ramsey program. Cut up the cards, sell anything they can sell, create a written budget, cut all unnecessary spending and attack the existing debts. Might be wise to sell that house and get them into some income based senior housing.