Harvesting Mom

Sarah’s mom is 73. “A sad, old woman,” says her kid. Her hisband was a plumber, dead now four years. The legacy was a house. And a $510,000 mortgage.

“She is financially struggling,” says Sarah. There’s a RRIF and OAS. That’s it. “It’s a stress on her life trying to make ends meet, since interest rates have escalated and it’s hard for her to maintain monthly payments.”

Sarah (she works for a real estate firm) and her sis “jumped on a reverse mortgage” for mom in order to make the other mortgage payments. Despite that, the RRIF is running dry.

“I’m so confused, and I think of soooo many scenarios and what ifs but I feel like the solution is right under my nose but I just can’t see it and don’t know what to do next! So this is where you come in!! I need some direction and I hear that you are amazing at looking at all scenarios and you know just what is best to do …  Can you helpus?”

The sisters are overwhelmed. Mom doesn’t want to leave the house she cannot afford and is now massively mortgaged. Bur Sarah understands about $300,000 in equity will evaporate over five years if the reverse mortgage is left in place. “At some point she will need to sell her home in order to cash out to have some money for the rest of her life.”

“I am trying to convince my mom to sell her home today and pay the penalty to cancel the reverse mortgage, take her $$ from the sale, and buy herself a small condo,” she says. “Me and my sister were debating if we should buy this unit and then rent it out for a bit until we can arrange and convince my mother is move into the condo. However, I’m not sure what the best move would be. Do I purchase it in our name, and then transfer title to my mom once she moves in? What about taxes in the future once my mom is no longer here? Do we keep it in our name for forever and just make my mom pay the mortgage while she lives there?”

Sarah also wonders if Mom should live with her and rent the house out. Or maybe Sarah and her family should move into Mom’s house. “and stay with her so she’s not alone, while we live mortgage payment free… helping my family for the future so we can invest money and set us up for our retirement while my mom stays happy since she gets to stay in her home that she’s lived in for the past 40 years.”

Well, what should they do?

First, cut through the fog of emotion. Mom is a financial failure and cannot afford to keep the house. That’s obvious. So, stop trying. Second, the reverse mortgage was a dumb move. Not only is the prevailing rate in the hood of 10%, but it’s leeching the only serious net worth the old gal has. All she did was boost debt in return for income to service existing debt. A reverse mortgage is a loan of last resort, and Peter Mansbridge should burn for it.

Third, forget the condo. Another bad idea proffered by bothersome children. Buying one would suck off whatever equity Mom has left, saddle her with monthly fees, and put her in the same financial distress. Moving and renting her house is also a non-starter. Positive cash flow after finance charges, insurance, property tax and maintenance costs would be impossible. And having Sarah’s family move in, with Mom still paying the mortgage so the child can fashion a better future of her own, reveals a dark corner of human nature.

The path forward is simple. Sell the house. Trash both mortgages. Invest the proceeds for income. Rent a nice condo some place close to the grandkids. No mortgage. No roof or furnace repairs. No property tax. No snow. No big, empty house with daily reminders of a lost partner.

A woman of 73 probably has 15 or twenty years ahead of her. Already her RRIF is leaking and will soon run dry. Mom has allowed her children to make bad choices, and now faces more costs to get out of the bloodsucking loan. The thing she needs most is liquid net worth placed into income-producing assets. Not a condo purchased in a tanking market.

Mom also needs a new life. In a new place. On her own terms. She’ll balk and protest at moving out of the long-term home, but that chapter is over. There’s a lot of life left ahead, and she needs to establish her own patterns, routine and rhythm – away from the meddlesome and micromanaging sisters.

Sarah was right to ask for an impartial assessment. Even if she hates it.

The lessons this family has to impart are simple and powerful. Don’t live on this earth for six or seven decades without preparing for what comes next. Getting old, ending work, living on less, struggling with health and loss – none of this is a surprise. It’s universal. Deal with it, plan for it, or be ruined by it.

Don’t have a one-asset strategy and think a house will save you. It won’t. Now Mom has to go to the real estate market at a time when listings are rising, sales falling and buyers fewer. If she had sold in 2021 it would have been a far different story. And where was Sarah then?

Don’t mistake love for guidance. You may trust family just because they’re family – but that doesn’t mean they have wisdom or insight. Adult children are steered as much by their own interests, and fealty to their own offspring, as affection for parents. Unless they’re experts in real estate, finance, investing or retirement planning, why take advice from them? Money and genes don’t mix.

Well, she asked.

About the picture: “I have been a long time reader of your blog,” writes Aldric. “This is my first ever email to you but I just wanted to say thank you for the information you share with the world. I have been reading your blog since 2011 and appreciate the advice and information you provide. Attached is a picture of Sora, a Shiba Inu I rescued during the pandemic from the local humane society.”

To be in touch or send a picture of your beast, email to ”[email protected]’.