A cheaper reverse mortgage alternative

Kass adds that the midterm rate would apply if you are only lending the money for a couple of years; otherwise, you should use the long-term rate as your guide.

The Consumers Union report suggests using a spreadsheet to keep track of each family member's investment in the loan and the interest due.

Determine if it's affordable

A private reverse mortgage may not work for everyone. 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.

As one financial adviser points out, an intrafamily loan may not be feasible when all the numbers are crunched.

"Sometimes the kids can't afford to provide the mortgage to the parents," says Debra Neiman of Neiman & Associates Financial Services LLC in Arlington, Mass. "They have too many obligations of their own, and they don't have the capital to provide the funding."

When you finance a reverse mortgage for a parent, you're purchasing a majority stake in the home, Neiman says. For that reason, you may want to evaluate how much the property will be worth. The type of dwelling, its appraised value, its location and the health of the local real estate market all factor in.

"If the child is going to do this, it's an investment on their part," Neiman says. "They are going to end up owning a property. They are taking an equity stake in the property now, and when the parent passes on, they'll have the remainder of the equity."

Prevent family disputes

Because business transactions within the family can be sticky, communicating with other family members about the plans for the home when the parent dies or is no longer able to live in it is also important. If the lending family member later wants to sell the property, but other siblings or a surviving spouse who holds the remaining interest in the home object, there may be friction, Neiman says.

But as long as a private reverse mortgage won't disrupt peace in the family, it may be just the right choice for seniors seeking peace of mind through affordable retirement living.


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