Question:

I am my mother’s primary caretaker, and my sister and I pay a friend to care for my mother several hours a week when I am not home. (I reside with my mother.) I will be returning to work at the end of August and my friend will care for her. Since we will not have the money to pay for all the additional hours, one of my sisters suggested a reverse mortgage. Please keep in mind I am not 62 or over. With that being said, I read briefly online about the private reverse mortgage. There is not much information about this type of reverse mortgage online, which leaves me with a number of questions:

1. What is the minimum age to obtain a private reverse mortgage? I will turn 60 in October. (The title of my mother’s house is under my name and there is no mortgage.)
2. What is the interest rate?
3. Are there any additional fees or costs?
4. Would the loan have to be paid back through the sale of the home? So, after the passing of my mother, would I have to sell the home? If I wanted to remain in the home after my mother’s death and wait to pay back the loan until I sold the house, would the loan continue to incur interest?

Response:

I’m not sure if you’re actually talking about a private reverse mortgage or a commercial one. The latter is offered by a bank or other financial institution and regulated by the federal government. It’s very much like a traditional line of credit, except that it doesn’t have to be paid back until the borrower sells the house, moves out, or passes away (I guess a form of moving out). As you suggest, you have to be at least 62 years old to qualify. It’s not clear whether you or your mother owns your home, but presumably she is over age 62 even though you are not. The main problems with such reverse mortgages are that they cost more than a traditional mortgage and the requirement that the loan be repaid upon death.

A private reverse mortgage is really just a form of a private loan secured by a mortgage. It’s not clear whether you are talking about a third party lending you the money to pay your friend or your friend in effect loaning her time. Assuming you’re talking about the latter, if your friend is willing to postpone payment for her services, you can give her a promissory note—a form of IOU—secured by a mortgage on the house and make it payable upon your mother’s death or upon your sale of the house. If your sisters or someone else are paying your friend, the same terms apply. You can sign a promissory note and mortgage to them. You would pay them off when you sell the house or take out a new mortgage or line of credit with a bank to do so. You don’t need to comply with all the other rules around commercial reverse mortgages. In your case, since this involves payment for services, you and your friend should also enter into a written agreement describing the work she will do and her compensation so that no misunderstandings arise in the future.

To answer your specific questions:

1. There’s no minimum age.
2. Interest rates for these “friendly” loans, parties use the “AFR” set each month by the Internal Revenue Service. As of this writing, long-term rates are just over 4.0% per year.
3. The only additional costs are what you would pay an attorney to draw up the papers and any fee for recording the mortgage at the registry of deeds.
4. When you pay back the loan is up to your agreement. But it’s only fair that the interest continue to accrue and, in fact, compound, since whoever the lender is, she’ll be without the use of the funds during this period of time. In addition, given the current low interest rates, the cost to you would not be too extreme.

Given the lower interest rate and lower expenses, a private reverse mortgage can be significantly less expensive than a commercial one.

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