A recent Fox Business article on reverse mortgages outlines the way in which a family member can finance a reverse mortgage loan for an eligible borrower, rather than going to a financial institution for funding. The article says the cost of the loans—including the HECM Saver—may drive borrowers to seek a family lender instead.
“Adult children or other willing family members with sufficient means can finance a private reverse mortgage. With the loan secured by a deed of trust, the cash can be paid in a lump sum, a line of credit or monthly installments, just like a reverse mortgage from a commercial lender,” the article explains. “The loan must be documented and filed with the Registry of Deeds. A certified public accountant or an estate planning attorney can handle the paperwork.”
The article outlines a potential cost scenario including upfront fees, then offers a contrasting scenario under which the borrower uses funding from children, rather than from a traditional lender, citing a Consumers Union report on intrafamily loans.
“Keeping the loan in the family can make tapping into the home’s equity more affordable, but too much of a bargain might make the family member-lender susceptible to the gift tax,” the article advises. “To steer clear, make sure the interest rate at least matches the applicable federal interest rate, or AFR. The Internal Revenue Service updates applicable federal rates on its website monthly.”
The option isn’t for everyone, the article cautions. “The Consumers Union advises that the family first needs to assess how much money the homeowner needs and whether the potential family lenders can afford to provide it”
Read the entire Fox Business article.
Written by Elizabeth Ecker