Helping Aging Parents Use Home Equity in California

Property Tax Relief Programs in California

Lowering a cost can sometimes ease the pressure before any loan is needed. The Consumer Financial Protection Bureau notes that many localities have programs to help with property taxes and suggests checking with the county or town tax office.

Property Tax Postponement. California's Property Tax Postponement program is run by the State Controller's Office. In general terms, it is meant for homeowners who are older, blind or disabled, for the home they live in as their primary residence, and it carries income and equity requirements. Postponed taxes are not forgiven. They are a debt held against the home. The State Controller's Office publishes the current eligibility figures and filing period.

Proposition 19. Proposition 19, effective February 16, 2021, changed California's rules for passing a primary residence from parent to child while keeping a lower assessed value, the value used to figure the tax. Under the newer rules, the exclusion is narrower than before, and it turns on the child using the home as their own primary residence. The State Board of Equalization and the county assessor explain the current rules. A tax professional or an attorney can say how they apply to one family.

If a tax bill is the immediate pressure, relief programs are worth understanding before turning to any loan.

Home Equity Loans and Lines of Credit (HELOCs)

A family that needs a set amount for a clear purpose often starts by asking about borrowing with regular payments. Two tools work this way.

A home equity loan is a lump-sum loan secured by the home. It is repaid in fixed monthly installments. A HELOC is a revolving line of credit secured by the home. The borrower draws on it as needed, up to a limit, and the payments can change.

Both require qualifying on income, credit and equity, and each lender sets its own standards. Because the home is the collateral, missed payments put the home at risk. The CFPB points out that these loans may be a cheaper way to borrow, but they carry their own risks, usually have monthly payments, and depend on income and credit.

These tools tend to fit a homeowner whose income can carry a payment and who needs a defined sum, such as for a home repair or care costs. The comparison of a HELOC versus a home equity loan goes further.

In California, a business that makes or services residential mortgage loans must be licensed under the California Residential Mortgage Lending Act, according to the Department of Financial Protection and Innovation, with exemptions that include banks, trust companies and licensed California real estate brokers, among others.

Cash-Out Refinance: What Happens to the Existing Mortgage

Some parents still carry a mortgage into retirement. For them, a cash-out refinance sometimes comes up.

In a cash-out refinance, the homeowner replaces the existing mortgage with a new, larger one and receives the difference in cash. The new loan carries the interest rate available at the time and a new amortization schedule. Amortization means the plan of monthly payments that pays the loan down over its term. As a result, the monthly payment may be higher than the old one.

The homeowner qualifies again on income and credit, and the home is the collateral. Closing costs are often rolled into the new loan balance, so they add to what is owed.

This option tends to fit a homeowner who still has a mortgage, has substantial equity, and can carry a higher monthly payment. The lender discloses its own rate and costs.

Reverse Mortgages: How They Work and What They Require

A reverse mortgage is the option that draws the most advertising, and the most worry. Plainly put, it is a loan against the home's equity that requires no monthly mortgage payments while the borrower lives in the home as a principal residence.

The obligations come first. The CFPB states that interest and fees are added to the loan balance each month and the balance grows. Borrowers must pay property taxes and homeowners insurance, use the home as their principal residence, and keep it in good condition. A HECM must be paid off when the last surviving borrower or eligible non-borrowing spouse dies, sells, or no longer lives in the home as a principal residence, meaning where they live most of the year, as the CFPB explains. The CFPB also warns that falling behind on taxes, insurance or other housing costs could lead to foreclosure.

The HECM. The Home Equity Conversion Mortgage is the only reverse mortgage insured by the federal government, available only through an FHA-approved lender, according to HUD. Federal law defines an eligible homeowner as one "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe," and 12 U.S.C. § 1715z-20(d) sets the loan's eligibility rules, including approved lenders, full cost disclosure and independent counseling.

Counseling. Before the loan, the borrower meets with a HUD-approved counselor. HUD's HECM Counselor Roster lists them, and HUD gives (800) 569-4287 as a number to call.

How money may be paid. Under 12 U.S.C. § 1715z-20(d)(9), the borrower picks among methods: a line of credit; monthly payments for a set term; a term with a line of credit; monthly payments for as long as the borrower lives in the home; tenure with a line of credit; or any other basis HUD considers appropriate. Any payment is made by the lender under the loan's terms. Federal rules limit the origination fee, and the lender discloses it. A reverse mortgage lender in California is subject to the same state licensing law noted above.

When You Are Helping a Parent: Practical and Legal Considerations

An adult child often becomes the family's researcher: gathering statements, asking questions, and making sure a parent understands what each option commits them to. That role matters, and it carries its own considerations.

Counseling together. A child can sit in on a parent's reverse mortgage counseling session, with the parent's agreement. The counselor can answer the family's questions too. The FTC notes that a counselor must explain the HECM's costs, financial implications and alternatives.

Family Opportunity Mortgage. This is a conventional loan program that has let adult children buy or refinance a home for an aging parent at owner-occupant terms rather than investment-property terms. Availability and guidelines change, and a lender can confirm what is offered today.

Co-signing. A child may be able to co-sign a parent's HELOC or home equity loan to help the parent qualify. The child then becomes equally responsible for the debt.

Inheritance. If the child later inherits the home, the Proposition 19 rules described earlier decide the property tax picture. Estate and probate matters belong with an attorney, and tax questions with a tax professional.

Protecting Older Homeowners: Avoiding Equity Scams and Predatory Offers

A house with a lot of equity can draw the wrong kind of attention. California's Department of Real Estate warns that scammers increasingly target seniors with real estate and mortgage deception.

Warning signs, in plain words:

• Unsolicited offers. The DRE urges caution when strangers make contact.
• Pressure to decide fast. A real option survives a few days of thought.
• Requests to sign over the deed. The DRE says never to transfer a home to anyone who claims doing so will repair credit or keep the owner in the home.
• Upfront fees. The DRE says never to pay for home loan or foreclosure relief services before the work is done.
• Promises of "free money" or a "no-payment" loan. The CFPB notes that some ads falsely imply VA approval, and that the VA offers no reverse mortgage loans.
• Pushing other products. The FTC says no one has to buy an annuity, investment or other product to get a reverse mortgage, and that in some situations insisting on it is illegal.

The DRE also urges using only licensed professionals.

Where Does Your Family Start?

Income, health, time in the home and the purpose of the money shape the comparison. Health and timing deserve particular attention: the CFPB notes that if a health issue may lead to a move soon, a reverse mortgage is an expensive way to cover short-term needs.

A few calm first steps tend to clarify things. A HUD-approved counselor can talk through a reverse mortgage before any decision. The county tax office can explain local property tax help. The National Institute on Aging notes that planning ahead allows important decisions while a person is still able. The California Department of Aging also lists programs and services for older Californians.

From there, a licensed financial professional, an elder law attorney or a HUD-approved counselor can look at the parent's own facts. Related topics on this site include paying for long-term care and high equity with low income.