My mother-in-law, 75, has difficulty paying off her $52,000 mortgage and $20,000 HELOC. Should she sell her home — or take out a reverse mortgage?

My mother-in-law, 75, has difficulty paying off her $52,000 mortgage and $20,000 HELOC. Should she sell her home — or take out a reverse mortgage?

Dear Quentin,

My mother-in-law, 75, has been married to her husband for almost 30 years.

They both have adult children from previous marriages. They are over 70 years old and for most of their marriage, they have kept separate money accounts. When they married, he moved into her home and a few years later, she added him to the deed. They still owe $52,000 on the mortgage and carry a $20,000 HELOC. They both receive Social Security, his being higher. He also receives a pension.

Last year, he moved to an assisted living facility. She remains in the home, herself in poor health. She can barely make her mortgage payment as all her income goes towards the house payment and living expenses. Her husband’s pension and Social Security go towards his assisted living facility. He does make the minimum payment on the HELOC. Other than that, he does not contribute to her finances.

They have granted power of attorney to each of their grown children. He signed a quitclaim deed on the house, but his name is still on the mortgage. He also inherited his mother’s home, but signed over his share to his sister. My MIL inherited farmland and five years ago put it into a trust with her sons as remainders. She needs to get out from under the mortgage and protect her assets. Her home is worth double the land.

I’ve advised her to sell the land, which would pay off the mortgage and give her a financial cushion. She resists this idea because she says it is for her sons (who currently must make up for any of her financial shortages). I’ve also asked her to contact her husband’s pension fund, but she says they will not provide her with any information. Her husband states he has “signed over” his pension to his daughter.

I’ve also asked her to consider a reverse mortgage, but her children are against the idea.

I am running out of options.

Daughter-in-law in North Carolina

Dear DIL,

You believe you are running out of options, but is this also true for your mother-in-law?

She and her children can’t have it every which way. They are in a stalemate where taking no action is the way forward. But doing nothing — for now — is often underrated: not selling stocks in a turbulent market, not making any major life change during the first year after a major life change or the death of a loved one and, yes, not selling her assets now that your mother-in-law is living alone. Sometimes, the more pressure you put on a person, the more they resist.

Her home is more than an asset. It gives her a sense of security, and if she has lived there for many years, she will also be surrounded by a community — whether they’re neighbors, friends, the mail carrier or even her favorite cashier in the local supermarket who says good morning and exchanges pleasantries. Selling her land is also tied up with the legacy she wishes to leave for her sons. Therefore, they are the ones who need to (gently) intervene.

Homeownership comes with property tax and/or HOA fees or maintenance costs like replacing the roof. The most obvious solution would be to sell her land and pay off her mortgage or — and this would be a harder sell — unload her house and move into assisted living with her husband. Ideally, she gets to stay in her home, and her sons have less responsibility helping her make ends meet. If her sons told her she already has given them everything they could ever want, she may not feel so beholden to passing on her generational wealth.

Medicaid eligibility

A reverse mortgage would allow her to waive her monthly mortgage payments. Reverse mortgages, which are available to people 62 or older and come with an interest rate, peaked in 2009 during the financial crisis at nearly 115,000, and have averaged tens of thousands per year since. She would need to pay origination fees, mortgage insurance, other closing costs, and property taxes. It will end when she passes away or moves out, and the family would inherit whatever is left over after paying off the note.

But she may not wish the bank to own more of her home after paying off her mortgage over the last 30 years. What’s more, she won’t get a mortgage interest deduction on her income taxes, and it could affect her ability to qualify for Medicaid and Supplemental Security Income programs. If your mother expects to live for a long time and/or if she expects the house to continue to increase in value, a reverse mortgage is generally a better bet.

Five-year lookback rule

If she defaults on her loan, her husband will be responsible for paying it off. He may not worry about his credit score if he’s now in assisted living, but it’s a red flag for anyone else on a loan and not on the deed. On the subject of beneficiaries: The Employee Retirement Income Security Act does not allow spouses to change the beneficiaries on ERISA-covered accounts like a 401k or 403b without the other’s written consent. (But this would likely not apply to his pension.)

Your mother-in-law could feel like she is being railroaded by others. Hire a third-party financial adviser or, better yet, an elder-law attorney — someone who can objectively go through her income, expenses and assets. Depending on the timeline of events, the five-year-lookback rule might make it possible for her husband to go on Medicaid and have it cover his assisted living, and even home care for your mother-in-law. That could help free up money for her mortgage payments.

It may help to visualize all her choices on a single sheet of paper with her assets (house and land) pictured on one side of the page, her income in the middle, and her expenses on the other side. I’m a big believer in putting things down on paper where you can see them, and add a timeline. It can give much-needed perspective, helps avoid obsessive thinking, and provides a reference point. Finally, tell her she doesn’t have to make a decision right away.

You may see assets to be liquidated on that page, but she will see her entire life.

April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of “Financial Fitness” articles to help readers improve their fiscal health, and offer advice on how to save, invest and spend their money wisely. Read more here.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

‘He was recently taken to the hospital’: My elderly neighbor gave me power of attorney. Can his estranged daughter object?

‘Punishing myself would not help’: My credit card was stolen — the thief revealed lots of nasty surprises about my finances

‘We’ve had our ups and downs’: My late in-laws left their estate to me, my husband and our son. Do we need to hire an attorney?

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