CircleLending was recently bought by Richard Branson’s Virgin empire and last week they announced that they were rebranding the company as Virgin Money USA. We wrote about Circle Lending back in February when they released their Family Advantage (TM) product, which was marketed as a reverse mortgage alternative.
“Our goal is simple-to provide a service that allows for more choices, a surer fit and ultimately, a better deal,” said Asheesh Advani, CEO of Virgin Money USA. Virgin Money is a financial services company that allows consumers to take major steps toward achieving their personal dreams, with help from friends and family. One of the products that is offered is their Retirement Mortgage. The press release states that the Retirement Mortgage is
for house-rich, cash-poor homeowners to get money without losing the family home to the bank. Similar to a reverse mortgage, but without the costs and restrictions.
While the “losing the family home to the bank” comment isn’t correct, I’m all for people having options when it comes to financing… so here is how the Retirement Mortgage works. A friend or relative extends a line of credit to a homeowner, they then make regular payments to the homeowner as determined by the loan terms. In return the friend or relative receives a lien on the property which is repaid when the last surviving borrower passes away, sells the house, or the terms of the line ends. In my opinion there are two real advantages to the retirement mortgage:
- No age restrictions.
- No property restrictions.
I read Virgin’s Guide to Retirement Mortgages and found it interesting that the guide reads a lot like your typical reverse mortgage brochure. Like reverse mortgages, retirement mortgages also use the Total Annual Loan Cost (TALC) and if you fill out their calculator it prints out an amortization schedule as well. Below is a table from the guide which compares the two products:
Overall, the retirement mortgage provides flexibility that a reverse mortgage can’t and could be a good option for someone. With the flexibility comes much more risk to the lender (aka family or friend), especially if there is already a mortgage on the house. The retirement mortgage doesn’t require the previous mortgage to be paid off, which would place the family member in second position. Unlike a reverse mortgage, the retirement mortgage doesn’t provide any sort of insurance to protect the lender in the event the house loses value and the borrower isn’t able to repay the loan.
While this may be risky for the lender, Virgin makes money by charging their initial fee for the loan documents and is paid monthly for servicing the loan. I’m all for having different options for people when it comes to lending, but with all the problems in the real estate market right now I can’t see many people wanting to become their families “neighborhood banker” anytime soon. To read a copy of the press release click the link below.