If you are struggling to financially support your children and a parent at the same time, you are far from alone. 47% of Americans age 40-59 are in the same situation and are now being referred to as the “Sandwich Generation”. According to the Pew Research Center, about 23% of Americans overall have parents age 65 or older and are either raising a young child or have provided financial support to a grown child in the preceding 12 months. Many within this group are providing financial support to both an aging parent and a child. However, if your parents own their home, they may be able to unlock the equity in their home to create a tax-free income stream by means of a Reverse Mortgage, without creating a monthly liability the way a traditional mortgage would. More details here: www.HBReverse.com
The short answer is no. However, it may be possible to get your lender or broker to pay a portion or even all of them for you. In some cases this can literally mean no net cost to you: you pay nothing out of pocket, nothing is added to your loan balance or deducted from your credit line. The tradeoff will be in the margin you choose as well as the loan balance at the time of closing, which will change the Yield Spread Premium available to the lender.
Conventional wisdom counsels use of a reverse mortgage only as a “last resort” when all other resources have been exhausted. And it is certainly true that if you trade home equity for cash flow you may end up with a smaller estate or no estate at all, especially if you are not careful with the proceeds. But reverse mortgages are not inherently harmful or dangerous and, in some cases, they can have the effect of increasing your estate. The outcome will depend on how they are used. Like a credit card, if used properly, a reverse mortgage can enhance your financial wellbeing and allow you to live a financially safer and more enjoyable life, but it can lead to financial troubles if misused.
USE THE RIGHT TOOL FOR THE JOB
Think of a reverse mortgage as an asset-management tool to use in income and estate planning. The following steps will help you maximize the benefit:
If you still have a traditional mortgage, you may want to consider replacing it with a Reverse Mortgage. Doing so will immediately improve your cash flow by eliminating the requirement to make monthly payments. You’ll still retain the portfolio leverage the traditional mortgage provided, but you’ll reduce the amount you’ll need to withdraw from your taxable assets for living expenses. Moreover, the reverse mortgage credit limit may be large enough to provide access to additional cash, which can further supplement sustainable withdrawals or add to your net assets. You may also choose to make voluntary repayments to the reverse mortgage balance, which will slow its growth and increase the cash available for future draws. You can stop making payments at any time if cash becomes tight.
If you’re like most people, you want answers to three basic questions about your financial future:
Even with savings and a paid-off home, many people still face the prospect of running out of money as they age, but recent research shows that strategically combining a Reverse Mortgage Line of Credit (RMLOC) with an investment portfolio can significantly extend the life of your savings. And if you are fortunate enough to enter retirement well-funded, this combination can actually increase the estate you’ll leave your heirs. How to use a Reverse Mortgage to your benefit will depend upon your financial profile:
ABOUT THE Author
Michael Melody has been a Mortgage professional in Southern California since
1990. Now based in Huntington Beach, Kevin assists buyers and sellers of
residential property with all their financing needs, with a special emphasis on
"Old School" personal service. He uses his more than two decades of
experience in mortgage lending and residential Real Estate to take his clients
from start to finish on any type of transaction. Sellers can take advantage of
his intimate knowledge of financing to pre-screen buyers and offer creative
solutions for self-employed individuals, business owners and otherwise
well-qualified buyers who may not fit traditional lending guidelines. He also assists
homeowners looking to refinance to a better rate or lower payment, consolidate
debts or get cash for home improvements, and even families whose homes are
underwater can be helped under Fannie Mae's Home Affordable Refinance Program
(HARP) and Freddie Mac's Open Access Relief Refinance for owner-occupied
single-family homes, condos, manufactured homes, and 2-4 unit residential
income properties, as well as vacation homes, rentals and investment property.
Kevin is a proud veteran of the United States Air Force, and author of the 2001
book "What Lenders Don't Want You To Know."