‘When I inherit my mum’s house, do I sell it to pay off my mortgage or rent it out?’

Q. I have a property worth around $800,000, and I have a mortgage of around $350,000. My mother is 88 years old and has a property worth around $900,000. My inheritance is three quarters of that property and my sister’s is one quarter. Is it better for me to sell the property altogether, pay off my mortgage and then decide what to do with the balance? Or is there another way that I can just borrow the one quarter to pay out my sister and hang onto the property and then rent it out. I am 63 years old and cannot retire until I am 66-and-a-half years old.

A. It is difficult to give a definitive answer to your question because I am limited to providing general advice only. A definitive answer would require me to have a lot more information about your personal circumstances, needs and objectives. Having said this, I have a couple of general observations.

I am always uncomfortable with the idea that someone relatively close to retirement is carrying any debt and particularly non-tax-deductible debt.

I assume the property that you own is your principal residence and not a rental property. Questions about which property to hold and which property to sell in the event of your mother’s death requires detailed consideration of the capital gains tax consequences (if any) of these transactions. Assuming you wish to remain in your own home, I would normally suggest someone of your age use the proceeds of any inheritance to clear any debt and then make some decisions about how to invest the balance to ensure it best meets your needs. This decision would need to consider factors such as your need for cash flow, possible entitlements to the Age Pension, risk and taxation issues.

Normally I would be uncomfortable with the idea of you borrowing money to retain your mother’s home, particularly as you are close to retirement, or may be in retirement when your mother passes away. Unless she is very ill at present, you also need to allow for the possibility that your mother may live for another 10 years or more before the questions above actually need to be answered. A further complication could be if your mother needs to go into residential aged care, in which case there are even more complicated questions related to how you would deal with her home.

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