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Starting May 1, there will be a new way for seniors to attain reverse mortgages from what is called a Caregiver Loan. This loan will allow adult children or grandchildren of seniors to pool resources to provide a flexible line of credit at interest rates much lower than commercial reverse-mortgage lenders charge.
The Caregiver Loan will negate steep fees acquired from the interest rates commercial reverse-mortgage lenders charge and the senior won’t need to go through a bank or mortgage company. It can be a win-win for seniors and the adult children or grandchildren who are lending their money to the family member. Seniors will get the reverse mortgage loan at a lower rate and their children or grandchildren can charge a small interest fee which would be higher than what they’ve been earning on their bank deposits or money market funds.
Options for relatives providing reverse mortgages include loans secured by a deed of trust, a line of credit or monthly installments, or the cash can be paid in a lump sum. The loan then needs to be documented and filed with the Registry of Deeds. From there, an estate planning attorney or certified public accountant can handle the paperwork.
However, there are downsides to intra-family reverse mortgages because parents and their children often don’t see eye-to-eye. That’s where companies like National Family Mortgage come in. The company focuses on intra-family mortgages to help families structure a note, and will file the loan with the proper government authority, according to the company’s CEO, Timothy Burke.
National Family Mortgage doesn’t lend money. It helps construct lending agreements among family members. This includes accounting, recordation, documentation and servicing for home loans made by family members who want to keep the money in the family. National Family Mortgage charges a flat fee of $2,500.
Relative-lenders should be advised that asking for too low of an interest rate can make them susceptible to gift tax. The tax applies whether the donor intends the transfer to be a gift or not. The gift tax applies to the transfer by gift of any property. In order to avoid this, relative-lenders should make sure their asking interest rate matches the applicable federal interest rate found here.