make any sense to payoff girlfriend's mortgage like this?

[flipperxxx]

   my girlfriend got divorced two years ago and is finally refinancing her place to get her ex off the deed and out of the picture.  i am currently splitting the mortgage with her.  i am living off of my social security with no other income.  i am 67 and in failing health and have around 2 million in the bank and stock market.  no real estate or other investments.  and no debt.

  she can get the refi no problem.  we live in san diego.  her place is worth about 1 million and she has about 500k in equity, so her mortgage would be for 500k.

  but then i got to thinking, what if she skipped the bank mortgage and i became her bank under the following scenario:

  we do a promissory note with lien on the house for 500k.  interest would accrue on some % basis but instead of it being paid monthly, it'd simply accrue to the original 500k loan amount.  if i should die first, the total amount owed would be due to my daughter or her heirs and assigns upon the death of my girlfriend.  if my girlfriend goes first, i would retain the right to live in the house as long as i wanted or am able.  upon it's sale, my daughter would get her share and my girlfriend's sole heir, her brother, would get his.

  if we break up, i dunno what happens but my intention has always been that she be able to stay in her home.  (if you own a place free and clear, can you then get a mortgage on it?  if so, if one of us gets the boot, maybe she could get a mortgage then).

  since i'm already living on just my SS, i don't really need any current income from that 500k.  (i think i'm supposed to pay yearly taxes on the interest regardless of whether i get it or not, but i'd probably just shrug that off.)  (i wonder if medical needs should deplete all my other assets whether that 500k would escape the billing man's clutches.)

  is this just a stupid idea?  certainly it'd be nice for neither of us to have to a pay a monthly housing nut (but for property taxes and insurance) and perhaps i could be persuaded to live a bit beyond my current social-security needs, kick up my heels for a change in me twilight years.

  in terms of interest, since she wouldn't be paying it in real time, i was thinking it should be right around what a bond-loving, FD-following guy like me could reasonably expect on an annual basis ie 6%.  further, thinking of my daughter, we could make it 6% per year or the property value % gain from time of note signing, whichever is greater.  i'm in san diego and values have been skyrocketing, tho of course that could all change in an instant.  in any event, my intention would be for my daughter to get the loan amount + interest at the very least.

  i'm kind of thinking this idea much have some pretty major flaws but if someone could point them out to me, i'd be most grateful.

[richardsok]

"if we break up, i dunno what happens" Answer that issue first.

A personal life lesson: When people of means begin to get sickly, that's when the wolves come out.

Right now your situation seems rather straightforward. Who are your heirs? Will your plan complicate your estate -- and their lives? For heaven's sake, keep it simple if you can. I had an uncle who got a little dotty. He drove all around the country and to "diversify" his wealth, he'd open up $9,000 saving accounts in every little drip-water S&L or streetcorner bank he could find. It became his main hobby in the final year or two of his life. When he passed, it drove his heirs nutso.

You want to speak to an accountant and an estate lawyer BEFORE you talk it over with your partner.

I'm not saying "no" -- just that entanglements can cause enormous unintended headaches.

Keep it clear. Keep it simple. Good luck.

[yogibearbull]

I have friends where the parent became "banker" to his kids. So, in these tough times for fixed-income, the parent gets monthly income and kids get mortgage from dad on formal but easier terms.

When unrelated parties are involved, make sure that 1) loan terms can pass muster with the IRS, 2) legal terms keep you away from any harm.

[Deleted]

Dec 21, 2021 16:50:47 GMT flipperxxx said:

   my girlfriend got divorced two years ago and is finally refinancing her place to get her ex off the deed and out of the picture.  i am currently splitting the mortgage with her.  i am living off of my social security with no other income.  i am 67 and in failing health and have around 2 million in the bank and stock market.  no real estate or other investments.  and no debt.

  she can get the refi no problem.  we live in san diego.  her place is worth about 1 million and she has about 500k in equity, so her mortgage would be for 500k.

  but then i got to thinking, what if she skipped the bank mortgage and i became her bank under the following scenario:

  we do a promissory note with lien on the house for 500k.  interest would accrue on some % basis but instead of it being paid monthly, it'd simply accrue to the original 500k loan amount.  if i should die first, the total amount owed would be due to my daughter or her heirs and assigns upon the death of my girlfriend.  if my girlfriend goes first, i would retain the right to live in the house as long as i wanted or am able.  upon it's sale, my daughter would get her share and my girlfriend's sole heir, her brother, would get his.

  if we break up, i dunno what happens but my intention has always been that she be able to stay in her home.  (if you own a place free and clear, can you then get a mortgage on it?  if so, if one of us gets the boot, maybe she could get a mortgage then).

  since i'm already living on just my SS, i don't really need any current income from that 500k.  (i think i'm supposed to pay yearly taxes on the interest regardless of whether i get it or not, but i'd probably just shrug that off.)  (i wonder if medical needs should deplete all my other assets whether that 500k would escape the billing man's clutches.)

  is this just a stupid idea?  certainly it'd be nice for neither of us to have to a pay a monthly housing nut (but for property taxes and insurance) and perhaps i could be persuaded to live a bit beyond my current social-security needs, kick up my heels for a change in me twilight years.

  in terms of interest, since she wouldn't be paying it in real time, i was thinking it should be right around what a bond-loving, FD-following guy like me could reasonably expect on an annual basis ie 6%.  further, thinking of my daughter, we could make it 6% per year or the property value % gain from time of note signing, whichever is greater.  i'm in san diego and values have been skyrocketing, tho of course that could all change in an instant.  in any event, my intention would be for my daughter to get the loan amount + interest at the very least.

  i'm kind of thinking this idea much have some pretty major flaws but if someone could point them out to me, i'd be most grateful.

I had an old boss (an attorney) who had a great saying - everybody's happy on the wedding day.  Personally, I'd go for paying half the refi costs and your half of the payment if you want to help her out.  Also depends on what you are paying now and after.  I think it is generous to be paying half a mortgage.  Could go either way.  Good luck.

[steelpony10]

flipperxxx ,

      I say pay her rent and pay for other necessities if you’re going to cohabit. She dies you find a new place to live and it sounds like you’re headed for independent living. If you pass you can always will her money if you wish. Of course she can do the same for you. I know a couple in this same situation and they handle it this way.

[flipperxxx]

thank all. steelpony10: yup, that was my plan before the current thought, will her the money to pay off the mortgage w/ the stipulation that after she passes or sells the place, that $ + interest goes to my daughter.. think i'll go back to it. thanks again!

[jongaltiii]

flipperxxx pay rent as you are roommates at the moment. You have to plan / imagine for the worst. A messy breakup. You can’t say I dunno. Where does that leave your family? You ? Going into business with your family is tough enough, let alone a cohabit - it’s not wise IMHO. You should pay close attention to how the will is drawn up if you go that way -it could be easily challenged if not done correctly. Mortgage rates are at all time lows, it’s not as if you’ll save much interest. Paying rent is not such a bad thing. I wouldn’t will the house with conditions on your interest or principal in the house. You think you are doing a positive thing by adding a condition that if the house is sold…what happens. That can create complications on its own.

I would just pay half rent and will her money. AND make certain that everyone knows what your wishes are. Even then, I’ve seen these things go awry if not documented perfectly. It sounds like you have terrific intentions but I would just pay 1/2 rent.

[flipperxxx]

what you're saying makes perfect sense to me. i guess what i found appealing was the idea that, with the interest accruing instead of being paid monthly, i wouldn't be paying rent and she wouldn't be paying on the mortgage, so we'd have double the cash flow in the present, leaving our heirs and assigns to sort out the mess upon our passing. thanks, dad! thanks, sis! but eventually they'd all get what's coming to them. anyway, sounds like there are too many pitfalls and complications for it to really be a workable idea.

[shipwreckedandalone]

Many years ago a popular strategy was to open deposit accounts in S&L's in the hopes they would go public. In some S&L's the depositors were owners (pre IPO). Any capital raised in an IPO created a situation whereby the depositors participate in the IPO and could profit accordingly. Book values increased over night via any cash brought in by the offering.

[jongaltiii]

shipwreckedandalone - disagree with your post.

It wasn’t just many years ago…it’s still a very profitable venture 

Around 200 of them…get searching. You might just double your money. 

[shipwreckedandalone]

thanks for the advice but I'll pass on that.

[jongaltiii]

shipwreckedandalone Might have sounded sarcastic but it was not. It was actually very good advice by you. A little research and you’ll see. There’s less of them now and … it’s easier to find the winners. I just doubled an investment in one with little effort. They typically IPO for $10 a share. Now looking for more. Won’t post more on this so as not to hijack thread.