Taking Care of Mom and Dad: Simplify the Financing

You may wonder why a solution can't be a conventional home-equity loan to get at the equity in your parents' home. Home-equity loans are secured by the excess of the fair market value over existing debt on the property. They won't solve cash flow problems because they provide a lump sum of cash and require your parents to make monthly payments to the lender.

Furthermore, interest rates on home-equity loans can usually be adjusted every quarter, and if interest rates increase, your parents' required monthly payments will also increase. Most importantly, if they are unable to make their required home-equity loan payments, they could lose their home to foreclosure. So, if your parents need extra cash flow but can't take on the burden of making monthly payments, a home-equity loan will not work for them.

To qualify for a home-equity loan your parents need to be earning income that is both steady and quantifiable. The lender wants to make sure they have sufficient income to pay the home-equity loan's required monthly payment. If they have enough income to qualify for a home-equity loan, they probably don't have cash flow problems in the first place. There's an old saying that banks will make home-equity loans to people only if they really don't need they money.