In the wake of big banks deciding to exit the reverse mortgage industry and a potential reduction in lending limits, an article in The Wall Street Journal suggests that some families may be better off seeking a way to create their own reverse mortgage.
The article that an alternative to a HECM reverse mortgage, adult children could reduce costs and paperwork of a reverse mortgage mortgage by purchasing their parents home, or setting up a private reverse mortgage to help their parents tap the equity in their home.
In either case, children would essentially provide financial support for their parents that is backed by the home through a purchase agreement or deed of trust. An financial planner quoted in the article indicates that there may be some additional benefits that helps families avoid some capital-gains taxes in the future, due to a "stepped-up basis."
Of course, creating a family based private reverse mortgage requires that the adult children have the means to be able to provide the financial support to their parents and that they will be able to recoup the money provided to their parents after their passing and the home is sold.
The article notes that support for family private reverse mortgages could grow if the government allows lending limits to be reduced from $625,500 to $417,000 when the current extension of higher limits expires on September 30th. Additionally, funding for the required counseling is running out and, as of now, is not included in the federal budget for next year.
Further, the article warns that pending rule changes to how borrowers' ability to pay the taxes and insurance is assessed could make reverse mortgage applications more complicated.
Barbara Stucki from the National Council on Aging is quoting in the article regarding the pending changes suggesting that for those considering a reverse mortgage, "The good advice is to do it this summer."