Paying off half of house to sister-in-law?

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Paying off half of house to sister-in-law?

Post by Frenetic » Mon Oct 30, 2017 6:45 pm

My wife and I are married and have the great fortune of inheriting a house from the grandmother. But after inheritance there is an additional payment to be made to the sister in law. We have no other debt and we budget to pay off our credit cards every month.

My income: $75000
Her income: $50000

Emergency fund: 6 months saved for the both of us (already saved)

Her Roth IRA (started funding this year): $5500
My Roth IRA: $5500
Maxed out 457: $18000

Her available cash reserves: $89000
My cash reserves: $78000

We owe $96000 to her sister-in-law to the inherited house that we currently live in. It's interest free but I feel like I we can pay the loan to her and just be in the free in clear in case things happen. This would be split down the middle so she would be left with $39000, and I $43000. My car is relatively new and she might buy a car. What do you all think?

Thanks in advance,
Last edited by Frenetic on Mon Oct 30, 2017 7:18 pm, edited 5 times in total.

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Re: Paying off half of house to sister-in-law?

Post by Saving$ » Mon Oct 30, 2017 6:56 pm

It is unclear from your post what the source of the payoff money is.

A 6 month emergency fund of your combined income is $62,500 (1/2 of $75k + $50k), which is insufficient to pay off a $96k loan and would leave you with no emergency fund.

Perhaps you are proposing using the $62k emergency fund, and withdrawing the $29k retirement funds, which would net you $91k, still insufficient to pay off the loan, and would leave you with $0 emergency funds as well as $0 retirement funds.

Does the SIL need the money?

A far better plan would be to continue to maximize the tax advantaged retirement space (once it is gone, you cannot reclaim it), and save like crazy to try to pay back SIL within a few years. How long did it take to save the $62k?
At a minimum, pay the SIL a monthly amount that is equal to or slightly more than what you would pay for housing if you had a mortgage, less the cost of insurance and property taxes.

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Re: Paying off half of house to sister-in-law?

Post by student » Mon Oct 30, 2017 7:05 pm

It is not clear that whether you and her are married since everything seems separate. If so, I would pay the loan since you can afford it. You two together have over $160 in reserve. After paying the loan, you two still have over $80 in reserve. The main reason is that you can afford it and there is no reason of owing someone money. After all, you two probably don't want to be seen as taking advantage of your sister-in-law since you two are paying no interest.

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Re: Paying off half of house to sister-in-law?

Post by Crustus » Mon Oct 30, 2017 7:36 pm

Your presentation of your situation is a bit unclear but if your cash reserves are separate from your Roths and retirement savings then it looks like you have enough to pay the SIL and still have an adequate cash reserve (emergency fund).
And . . .

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Re: Paying off half of house to sister-in-law?

Post by Watty » Mon Oct 30, 2017 7:56 pm

Another option would be to just get a mortgage for $96,000 to pay off the sister in law.

It sounds like you are keeping your finances separate, which some people do, so one issue is that one of you likely inherited half the house, not both of you. It was not clear but it sounds like your wife inherited half of the house from her grandmother and you didn't inherit anything.

If that is the situation then since you are keeping your finances separate it might make sense for your wife to get the mortgage and keep the house title in her name. You could then pay her rent either directly or by paying for things like utilities and maintenance each month while she pays the mortgage.

If you ever split up then she would keep her house and whatever is left of the mortgage.

It would be good to have a lawyer write up an agreement to formalize the financial relationship.

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