How can I pay off my parents' mortgage?

The Bank of Mum and Dad has long been at the forefront of helping the younger generation get onto the property ladder. But have you considered the reverse situation? 

As your parents grow older, they may find it challenging to afford their mortgage repayments, especially as they near retirement. Increased living costs and certain health conditions can also make it difficult to work, resulting in loss of income or financial hardship that could potentially lead to your parents defaulting on their mortgage repayments. Luckily, you can help your parents pay off their mortgage by making the loan repayments on their behalf.

However, you may not be able to formally assume the mortgage and take over the loan repayments from your parents. Many lenders will not allow a mortgage to be transferred to another person. Instead, you'll need to have the property title transferred to your name and apply for a new home loan to pay for it. 

What are the different ways for transferring the property’s title?

To transfer the title, your parents may execute a gift deed to transfer their interest in the property to you without receiving any payment. However, the mortgage cannot be transferred along with the title. Even if you receive the property as a gift, you’ll still need to apply for a home loan to pay off the outstanding mortgage balance and pay any applicable taxes in your state. It's advisable to discuss this option with your solicitor to make sure you go about it in the legally correct manner.

Another option is buying the property at its market value from your parents with a formal contract of sale. In this case, you'll apply for a home loan to cover the property's market price and pay it to the seller (your parents, in this example). The seller will then use the funds to pay off their outstanding balance, and you will begin making mortgage repayments to your own lender. Depending on your family arrangement, your parents may continue residing in the house with you or use the remaining money after paying off their mortgage to downsize to a smaller home.

If your parents are going to stay with you, you may even work out an arrangement where they sell the house to you for the price of the outstanding mortgage. In this situation, you'll only have to apply for a home loan for the outstanding mortgage balance, which is obviously cheaper than purchasing a home at its market value. 

If the property title is shared between family members, the ownership share may be adjusted to reflect the primary mortgage payer. It's worth discussing the situation with legal and financial experts to help you avoid any complications at a later stage.  

Can I pay off my parents' mortgage without transferring the title to my name?

There's nothing that prevents you from making mortgage repayments on your parents' behalf. A lender may be less concerned with who's making the repayments and more that they are being made on time. 

However, making these repayments will not automatically entitle you to any interest in the property. Once the mortgage is paid off, the title will still remain with the original mortgagee, that is, your parents. It's also possible that you decide to take over the repayments from your parents on the condition that the property will be left to you in their estate. If so, it could help to discuss the arrangement with a solicitor so that your parents’ will stipulates this accordingly. 

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