Should recently retired parent clear her mortgage with her lump sum + best way to help her move

[Honestly]

Situation: My mam just retired and is seeking to move from West Dublin to North Dublin to be closer to family. I will likely financially support her in this move. Trying to understand what the right bets to make are, given interest rates, and the fact I'll be financially supporting some of the move and that may impact my taxes/choices.

Personal details for my Mam
Age: 63
Spouse’s/Partner's age: NA
Number and age of children: me 36 (details below), sibling 31 (currently lives at home but is sale agreed on a property in the west and hopes to move once probate is complete)

Income and expenditure
Retired, state and private pension: 388 per week combined

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving, though very recently retired so hoping this will be fine.

Summary of Assets and Liabilities
Family home worth €220k - 240k, with 48k remaining on mortgage, paying 631 per month on a tracker mortgage
Savings of 90k (40k savings accrued, 50k pension lump sum just received)

Other borrowings – car loans/personal loans etc
No loans, owns second hand car worth 5k, clears credit cards
Will inherit 1/4 of family home, approx 70k, at some unknown future time

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Personal details for me
Age: 36
Spouse’s/Partner's age: NA
Number and age of children: none, none planned

Income and expenditure
Privately employed; ~150k a year income
Pension; ~45k saved, contributing 8% of salary matched w 4% from employer
Company options: ~150k, but depends on liquidity event
RSUs: 10k

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving, though not as much as I'd like as have been supporting some friends through some rough times.

Summary of Assets and Liabilities
Mortgage of 375k, 260k remaining, current market value of 450k. On a 7 year fixed rate of 1.9% with Avant, just moved early 2022. 26 years remaining (I think, but aim is to clear it sooner).
Savings of 70k (accrued savings, plus some sale of shares from previous company + redundancy lump sum)

Other borrowings – car loans/personal loans etc
No loans, own second hand car worth 20k, clear credit cards

What specific question do you have or what issues are of concern to you?

• Should my mam clear some or all of her mortgage with her lump sum, given the rising cost of interest, in the next 3 months?
• Given she plans to move in 2023, should she deliberately not-clear her mortgage and sell, then clear the mortgage with the proceeds of the sale? Unlikely she will sell until June ish.
• Given my mam will sell her home for approx 220k (a three bed terraced house deep in a not super desirable suburb) and likely move to a 2 bed apartment on the north side that will cost up to 300k (likely), and given I will contribute up to 30k to help her do this, what is a smart/cost effective way to approach this?
• I would personally be interested in moving to a slightly bigger/different home - I purchased pre-pandemic and what I would enjoy has shifted since. Is there a world in which it's smart for me to sell/rent/give my own home to my mother (for 300k?), and get another mortgage with my own equity (assuming that 150k in options came through in the next 12-18 months).
• My own goals are to support my mam and to be mortgage free by 50 if at all possible, I do not really care about 'losing' money in supporting her and want her quality of life to be high for hopefully the next 20-30 years (and of course, it'll come back to me one day anyway). For myself, I'd love to move to somewhere with side access, a bigger back garden for a dog, and a newer build (I do not have any interest in decorating or renovating my current home). It feels like between my mam's assets and mine, and my income, this should be possible. Any guidance welcome.

 

[ClubMan]

What's the tracker margin on your mother's mortgage?

 

[Honestly]

I'm not sure what that is or how to find out! I'll Google it tomorrow. Thanks for the reply.

 

[RedOnion]

I'd love to move to somewhere with side access, a bigger back garden for a dog, and a newer build

Do you have rough figures on what that would cost?

There's a lot going on in your post, your mam moving mid 2023, and you hoping to have your options in 12 to 18 months, and 2 house moves.

Let's start with the practical.

Right now you'd be able to get a 2nd mortgage somewhere around 260k, combined with your savings would give you a budget of c. 330k to buy.

Your mam can't borrow based on her pension income. So to move she'd had to line up selling & buying at same time, or as you suggest she moves into your place, and then when she sells her own buys your place from you, and then you've the cash you need to move. But it means sharing with your mam for a bit.

Does your mam actually want your house, before you make too many plans?

I don't see any benefits in your mam holding onto her tracker, unless it enabled her to gift you enough cash that you could move sooner. It's currently costing her 100+ per month in interest to keep it, which is a lot out of her pension income.

given I will contribute up to 30k to help her do this, what is a smart/cost effective way to approach this?

Any contributions you make to your mam are best made as a loan, and can be offset against future inheritance so you don't pay tax on it.

And something you didn't ask - you should really start increasing your pension contributions.

 

[NoRegretsCoyote]

• Should my mam clear some or all of her mortgage with her lump sum, given the rising cost of interest, in the next 3 months?
• Given she plans to move in 2023, should she deliberately not-clear her mortgage and sell, then clear the mortgage with the proceeds of the sale? Unlikely she will sell until June ish.

It would tend to make sense to have her clear her mortgage now. Not so much for interest savings which are immaterial in the scheme of things but it could speed up sale and potential purchase if the mortgage is cleared and deeds are back in her possession.

Given my mam will sell her home for approx 220k (a three bed terraced house deep in a not super desirable suburb) and likely move to a 2 bed apartment on the north side that will cost up to 300k (likely), and given I will contribute up to 30k to help her do this, what is a smart/cost effective way to approach this?

Structure it as an interest-only loan. She can repay you interest at whatever the prevailing retail deposit rate is which you then write off and it's a gift under the €3,000 p/a threshold where there are no tax implications. Make sure that this is all documented.

• I would personally be interested in moving to a slightly bigger/different home - I purchased pre-pandemic and what I would enjoy has shifted since. Is there a world in which it's smart for me to sell/rent/give my own home to my mother (for 300k?), and get another mortgage with my own equity (assuming that 150k in options came through in the next 12-18 months).

This is a completely different scenario. Bear in mind that if you need a second mortgage it will be on stricter terms and on BTL rates which are in the region of 6% now. Your own fixed rate with Avant is pretty valuable in and of itself as that rate won't be seen again in the market for a long time and if you sell to your mother you would forfeit that. In any case a broker would give you a good idea of what is feasible for someone with your age, income, and debt levels.

I do not really care about 'losing' money in supporting her and want her quality of life to be high for hopefully the next 20-30 years (and of course, it'll come back to me one day anyway).

You have another sibling so be careful about how all this is structured well in advance.

Pension; ~45k saved, contributing 8% of salary matched w 4% from employer

Your pension wealth seems a bit low for your age and income levels. In your shoes and with lack of dependents I would try to boost contributions closer to tax-relieved limits. I would de-prioritise mortgage overpayment and prioritise pension contributions. By the age of 50 almost certainly you will almost certainly get a better return from a pension than you will from paying down a mortgage at a rate of 1.9%.

No matter what the arrangement is you will both need (separate) legal advice so no harm to start those discussions soon. Good luck!

 

[skrooge]

• I would personally be interested in moving to a slightly bigger/different home - I purchased pre-pandemic and what I would enjoy has shifted since. Is there a world in which it's smart for me to sell/rent/give my own home to my mother (for 300k?), and get another mortgage with my own equity (assuming that 150k in options came through in the next 12-18 months).

I don't think retaining and renting will necessarily work but how feasible would it be for you to borrow from her?

Right now your mother has (illiquid) net assets of approximately €260k. If she were to sell she could lend you the proceeds. In addition to her loan you also have liquid assets of 70k (potentially rising to €220k with options?). Would €480k be sufficient to buy what you would like?

In this scenario you could retain your existing property on it's current rate and allow your mother to stay there.

Plenty of drawbacks to this. Your leverage is increased, you're particularly exposed to one asset class - property - and what you can purchase is not significantly greater than the value of your current property. Also from your mother's/sibling perspective their finances/inheritance are intertwined with your financial position. You'd effectively be renting to your family which brings with it added complications. Especially if you were to encounter your own financial difficulties.

 

[Brendan Burgess]

Should my mam clear some or all of her mortgage with her lump sum, given the rising cost of interest, in the next 3 months?

Looking at it in isolation, yes, she should.

But it would be better for her to hold onto her cash for the moment, given the complexity of the situation and the multiple permutations where cash could come in handy.

Brendan

 

[Brendan Burgess]

(assuming that 150k in options came through in the next 12-18 months).

This is a huge factor. When this comes to pass, you will be in a much better position than you are at the moment. With so many options.
I suggest that you both wait until this happens and you know where you are.

Assuming you have €100k more buying power, you could buy a second house for

2nd Mortgage : €220k
Savings: €70k
Mum's cash: €90k
Share options: €100k
total: €480k

If your mother wants your house
1) Buy your house for €480k
2) If your mother wants your house, then sell it to her for €300k
3) She then sells her house and gives you the net proceeds.

If your mother does not want your house
1) Buy your house for €480k
2) Sell your own house for €190k equity
3) Your mother can now sell her home to buy a new house

You can probably work the figures so that she can buy a new house first without selling her old house.
But if you can't, you can get a second mortgage and buy the other house and then sell it on to her after she has sold her old house. There would be some additional costs in legal fees but in the overall scheme of things, this should not impact the decision.

 

[Brendan Burgess]

The permutations are too complex given the following

• We don't know the cost of your ideal home
• We don't know if your mother wants your house
• If she doesn't, we don't know her budget for a new home
• We don't know when and how much your share options are

In summary, the overall strategy is
1) Your mother should not clear her mortgage as the cash will be useful.
2) You should wait until you see how the share options go

 

[Brendan Burgess]

For myself, I'd love to move to somewhere with side access, a bigger back garden for a dog, and a newer build (I do not have any interest in decorating or renovating my current home).

I would personally be interested in moving to a slightly bigger/different home

You have the firepower to buy a much more expensive home, not just a slightly bigger home, and I think you should.

Brendan

 

[Brendan Burgess]

26 years remaining (I think, but aim is to clear it sooner).

Your aim should be to have a comfortable mortgage and not to have no mortgage.
For example, if the choice is between a €500k house and €100k mortgage left when you are 60 or a €400k house and mortgage-free by 60, go for the €500k house.

Brendan

 

[moneymakeover]

What I would do

Mother puts her house on market
Starts looking at houses to buy
Old house goes sale agreed
Put down deposit using 90k savings
Sell old house, receive maybe 180k after paying old mortgage.

I'm not sure can a retired person get a mortgage?

Maybe with lend from you if needed, close the purchase.
Again I'm not sure how she pays you back but there might be some affect on the inheritance later on.

Separately you decide in your own time if you want to trade up

 

[Brendan Burgess]

The problem with that is that it's unlikely that anyone will accept an offer from a buyer in a chain.
There doesn't seem to be any urgency in the decision for either party.
And there is plenty of money around.
So it takes so much pressure off the mother if she buys her new house before selling the old house.

Moving from old house to new house is stressful enough. Wondering if the sale will go through and if she can sign the contracts to buy and maybe moving somewhere temporarily creates stress which can be avoided.

That is why she should buy first and then sell as it seems doable.

Brendan

 

[Brendan Burgess]

Maybe with lend from you if needed, close the purchase.
Again I'm not sure how she pays you back but there might be some affect on the inheritance later on.

The daughter should lend the mother the money and document it as a loan.
The loan gets repaid from the mother's estate when she dies or earlier if the mother herself gets an inheritance.

Brendan

 

[Brendan Burgess]

Age: 36

And something you didn't ask - you should really start increasing your pension contributions.

Yes, but not yet.

Cash is king while you are involved in a complex financial plan which will be resolved in the next year or two.
At age 36, you have plenty of time to catch up.

But, for example, a well funded pension is much more important than clearing your mortgage by age 50.

Brendan

 

[sadie]

She doesn't need to clear her mortage now. That lump sum will then be gone forever.
Something might happen to the sale of the house. It might fall through. She might get sick and need treatment for a year and to stay in her house for that time.
Absolutely no need to clear it ahead of time.
That lump sum is worth more to her now as a safety net while she has very little other cash floating about.

 

[Honestly]

Do you have rough figures on what that would cost?

Does your mam actually want your house, before you make too many plans?

Any contributions you make to your mam are best made as a loan, and can be offset against future inheritance so you don't pay tax on it.

And something you didn't ask - you should really start increasing your pension contributions.

Thanks RedOnion.

If I wanted my ideal home in this area (side access, bigger rooms, bigger back garden) I think I'd be hitting approx ~500k. That feels like a lot for a single person to take on.

I havent asked my mam if she'd want my house, I wanted to check the chances of that option even being viable before potentially proposing it. I know she loves this area, and if moving here meant she got a three bed house instead of a two bed apartment, I think she'd jump at it.

Re loan; That's great advice and I see it repeated. I need to learn how to do that.

Re pension; I thought 8% was high! But I take your point.

 

[Honestly]

Structure it as an interest-only loan. She can repay you interest at whatever the prevailing retail deposit rate is which you then write off and it's a gift under the €3,000 p/a threshold where there are no tax implications. Make sure that this is all documented.

This is a completely different scenario. Bear in mind that if you need a second mortgage it will be on stricter terms and on BTL rates which are in the region of 6% now. Your own fixed rate with Avant is pretty valuable in and of itself as that rate won't be seen again in the market for a long time and if you sell to your mother you would forfeit that. In any case a broker would give you a good idea of what is feasible for someone with your age, income, and debt levels.

You have another sibling so be careful about how all this is structured well in advance.

Your pension wealth seems a bit low for your age and income levels. In your shoes and with lack of dependents I would try to boost contributions closer to tax-relieved limits. I would de-prioritise mortgage overpayment and prioritise pension contributions. By the age of 50 almost certainly you will almost certainly get a better return from a pension than you will from paying down a mortgage at a rate of 1.9%.

Thanks NRC!

Do you or anyone have a link that explains the whole interest-only loan and inheritance thing?

Thanks for the note on my sibling, I meant to actually add a comment on that in my original post. He's 100% sound, and on board with me getting back whatever I put in, and he's highly logical and always has been. Tbh, if the worst came of it, I'd let him keep my mam's house if he needed it, so should be ok. It's just the three of us and we've always been very close.

I will definitely increase pension contributions to at least 10% based on what folks are saying here, and maybe figure out more later. Thanks.

 

[Honestly]

I don't think retaining and renting will ecessarily work but how feasible would it be for you to borrow from her?

Right now your mother has (illiquid) net assets of approximately €260k. If she were to sell she could lend you the proceeds. In addition to her loan you also have liquid assets of 70k (potentially rising to €220k with options?). Would €480k be sufficient to buy what you would like?

In this scenario you could retain your existing property on it's current rate and allow your mother to stay there.

Plenty of drawbacks to this. Your leverage is increased, you're particularly exposed to one asset class - property - and what you can purchase is not significantly greater than the value of your current property. Also from your mother's/sibling perspective their finances/inheritance are intertwined with your financial position. You'd effectively be renting to your family which brings with it added complications. Especially if you were to encounter your own financial difficulties.

This is super helpful thank you. I think that she could go for that idea, but I suppose it's my own risk that the issue.

Maybe if the options come to fruition (realistically, I wont know until maybe early 2024, mid 2024?) this feels a lot less risky. And honestly after tax and conversion, they could be worth 100k or 300k, who knows.

I suppose the risks of waiting are 1) if I wait the options may not be worth as much as I hope and 2) the market might get worse over that time, but the benefits are that we could make a decision with more confidence if the options were worth something and my brother will hopefully be sorted moving by then.

I just want to make sure in this hypothetical situation I understand it correctly.

• My mam sells her house for 220k and has 40k savings, and gives me all 260k (is this a loan? how does she give it to me?)
• Using my mam's 260k and my own shares potentially worth 150k and my own savings (currently) 70k I have 480k to buy something new
• My mam moves into my house and I continue to pay the mortgage there, but it's effectively her house
• I live in my new gaff, nearby but not too close, that was closer to 500k and better matched for what I need

In theory in the above scenario the new house was bought in cash, and the only mortgage is on my mam's house (my old house) at a great rate and affordable price. That seems too easy? I mean I know there'd be some overlap with my mam and me living here, and risk in selling/buying/markets, but assuming things went even vaguely to plan (and I wouldnt take action until the shares were liquid) is that right?

 

[Honestly]

This is a huge factor. When this comes to pass, you will be in a much better position than you are at the moment. With so many options.
I suggest that you both wait until this happens and you know where you are.

Assuming you have €100k more buying power, you could buy a second house for

2nd Mortgage : €220k
Savings: €70k
Mum's cash: €90k
Share options: €100k
total: €480k

If your mother wants your house
1) Buy your house for €480k
2) If your mother wants your house, then sell it to her for €300k
3) She then sells her house and gives you the net proceeds.

If your mother does not want your house
1) Buy your house for €480k
2) Sell your own house for €190k equity
3) Your mother can now sell her home to buy a new house

You can probably work the figures so that she can buy a new house first without selling her old house.
But if you can't, you can get a second mortgage and buy the other house and then sell it on to her after she has sold her old house. There would be some additional costs in legal fees but in the overall scheme of things, this should not impact the decision.

Definitely seems like waiting on the shares is a good bet, even if waiting 12-18 months for them to be worth something is risky. Thanks!