If your mum and dad are in financial difficulty and can’t make their home loan repayments, is taking over your parents’ mortgage an option?
Banks will generally not allow you to simply assume a mortgage title entirely so you’ll need to apply for a new home loan and the old loan will need to be paid out.
However, there are some solutions for taking over your parents’ mortgage with the help from a mortgage broker and solicitor.
Can I Take Over My Parents’ Mortgage?
Yes, you can. There are a number of steps you can take to help your parents with their mortgage in a way that protects both of your interests in the property.
It’s essential to be open with your lender and it’s crucial you seek the professional help of a mortgage broker, a qualified solicitor and any other legal adviser.
Can I Just Take Over The Monthly Repayments?
Yes, you can, and you don’t need to disclose this to the lender either.
As long as the mortgage repayments are being made and the property title hasn’t changed, the lender is happy.
It’s more costly to the lender to sell the property in case of default than to prevent you from taking over your parents’ mortgage by making repayments.
Many sons or daughters in this situation choose to do this not only to help their parents but based on the understanding that the property will be left to them in the estate.
You should sit down with a solicitor and your parents to ensure that this is stated in the will of the estate.
Can I Just Take Over The Mortgage Title?
Not generally.
The reason is that a bank can’t simply approve a home loan with no property or security attached to it.
Since the property title is in your mum and dad’s name, the property will need to be used to pay out the existing mortgage.
The only exception to this rule is if the loan is an “assumable” mortgage by the bank’s definition.
This means the mortgage would have to be free of a due-on-sale clause and there a fee would be charged for assuming the home loan.
The problem is that due-on-sale clauses are on all modern-day home loans so assuming a mortgage is no longer possible.
Can I Be Added To The Mortgage Title?
Your solicitor can actually draft an informal agreement for there to be a mortgage in your name registered on the property title but your interest in the property isn’t protected because you’re not the legal owner of the property.
Essentially, you’re taking on part responsibility for the mortgage but you’re not entitled to anything should the property be sold.
That’s why it’s essential you really consider the decision you’re about to make with your parents. Family ties can break down.
Alternatively, sit down with your lender or speak with your mortgage broker about what you would like to do in taking over your parents’ mortgage.
Again, you’ll need to submit a new home loan application for joint ownership of the property and you’ll be liable for stamp duty for either transferring or changing the property title to include you.
Both you and your parents’ income, credit history and overall financial situation will need to assessed for serviceability.
Explore the 360° Home Loan Assessor for a hassle-free approach to taking over your parent’s mortgage. Gain insights into costs, assess borrowing power, and make informed decisions.
Does That Mean There Would Be Equal Responsibility For The Home Loan?
Because both you and your parents are on the mortgage title, you are liable in the event that your parents can no longer make their mortgage repayments for whatever reason including in the event of death.
Have You Considered A Favourable Purchase?
Your parents could sell you the property at or below market value, otherwise known as a favourable purchase arrangement.
Your parents could even sell it to you at a price equal to the mortgage balance, bearing in mind, there will be stamp duty and conveyancing costs for transferring ownership, just like a normal sale.
The benefit of a favourable purchase is that you can avoid the costly expenses of a real estate agent.
Essentially, this is a new home loan application and you’ll need to be assessed on your ability to make the mortgage repayments. This is known as serviceability.
It’s a creative way of taking over your parents’ mortgage that benefits both you and your mum and dad.
Make Informed Decisions With The 360° Home Loan Assessor
- Determine how much you can contribute as a deposit
- Get clarity on the total costs of buying a home
- Explore interest-rate options based on your situation
Can I Take Over My Parents’ Mortgage After They Die?
After your parent dies, someone will be responsible for distributing their assets in accordance with their will or with the terms of their trust.
During this period of time, the trustee or executor of your parent’s estate will use the estate’s money to make the mortgage payments.
If you have the right to ownership and plan to live in the property, you also have the right to take over the mortgage.
You can let the lender know and may need to supply a death certificate to prove that you’re now the rightful owner.
In cases like this, the benefit is that there is typically no capital gains tax (CGT) payable when the property transfers to you and the bank won’t charge you a fee for assuming the mortgage.
Of course, it’s not always that simple, particularly if you have siblings and close relatives claiming rights ownership in lieu of a will.
Going through a probate court can often cause huge family disputes.
Why Would You Take Over Your Parents’ Mortgage?
There are a number of reasons that you may decide taking over your parents’ mortgage is the right course of action.
The biggest reason is to help your parents remain in the family home.
Some of the reasons your parents may need help include:
- They’re in financial hardship: This could be due to a life event like an injury preventing them from working or the death of a spouse reducing the household income.
- They’re reaching retirement: It may be that over the years the mortgage has been refinanced to purchase an investment property or to go on family holidays. Your parents simply may not be able to pay off the home before they reach retirement.
- They’re living abroad: Perhaps they’re travelling a lot or living abroad a lot of the time and were planning on selling the property to you as a favourable purchase anyway.
What Can Go Wrong?
Ultimately, taking over your parents’ mortgage is often done on the proviso that you’ll be “taken care of” once your mum and dad pass away.
However, it’s essential that you check that you are named as beneficiaries in the property prior to this.
One thing that can stifle this from happening is if your mum or dad remarries following the death of the other and there is no life interest set up naming either spouse as beneficiary.
For example, if your dad died a few years ago and you had been helping your mum pay off the home loan for an extended period of time, planning to continue until she too dies, the property could actually revert to her new partner, rather than you as a child of the deceased.
A life interest is usually set to avoid this and ensure that the beneficiaries of the estate are firstly your mother and, after her death, the surviving children.
It’s essential that you and your parents have estate planning in place before considering taking over your parents’ mortgage.
How Else Can I Help My Parents?
Taking over your parents’ mortgage, whether through buying the property below market value or helping out with the mortgage repayments, is a big decision.
Going about it the wrong way can prove costly in the long run, with future legal disputes possibly affecting your ability to borrow in the future and putting you under financial strain if you already have a home loan.
Speak to your mortgage broker or your lender first. They may be able to provide a solution.
After that, speak to a financial adviser and a solicitor about other possible solutions.
Call us on 1300 889 743 or complete our free online assessment form and we can put you in touch with a bank representative or a solicitor who can help you.
Seek Legal And Financial Advice
Taking over your parents’ mortgage, whether through buying the property below market value or helping out with the mortgage repayments, is a big decision.
Going about it the wrong way can prove costly in the long run, with future legal disputes possibly affecting your ability to borrow in the future and putting you under financial strain if you already have a home loan.
Speak to your mortgage broker or your lender first. They may be able to provide a solution.
After that, speak to a financial adviser and a solicitor about other possible solutions.
Call us on 1300 889 743 or complete our free online assessment form and we can put you in touch with a bank representative or a solicitor who can help you.