The DIY Reverse Mortgage
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A few months ago a company called Circle Lending came out with a product aimed at facilitating the setup and ongoing administration of intra-family reverse mortgages. Family financed reverse mortgages have long been recommended as an option to be considered before settling on a commercial reverse mortgage loan. Steep closing costs can be avoided, the loan can be highly customized, and the money (and house) remain within the family.
But lending money among family or friends is risky for obvious reasons. The service offered by Circle Lending aims to create an “arms-length” buffer between family lender and family borrower by introducing a professional third-party loan administrator into the process. Loans are formalized, documented and serviced by Circle Lending. The company charges a one-time fee of $3,999 plus a $19 fee for each disbursement made to the reverse mortgagee. (If a single lump sum was loaned there would be one $19 fee; if monthly loan payments were scheduled there would be a $19 fee for each.)
Clearly, the Circle Lending Family Advantage reverse mortgage is a niche market product and not a feasible solution for many senior homeowners. The key ingredient is a willing family member(s) (or friends) with the financial wherewithal to comfortably take on the long-term obligation of funding payments to the senior homeowner.
Still, the benefits are considerable and this is an option that should be seriously considered. Here’s a good summary point of view from Morningstar .
Family reverse mortgages can duplicate the features and benefits of commercially available loans without the high startup costs and numerous restrictions. Family loans can be made on vacation property or other real estate, not just the primary residence and there is no age requirement for the borrower. Using an intermediary for these family reverse mortgages can help families to stay focused on the important relationships, and not the loan.
Here’s a side-by-side comparison prepared by Circle Lending which highlights the potential benefits of going this route:
| Traditional Reverse Mortgage |
Family Advantage (CircleLending) |
|
| Costs | $12,000 to $20,000 | $3,999 |
| Service Fees | $25 - $30 per month | $19 per payment* |
| Age | Must be at least 62 years old |
No age requirements |
| Eligible Properties | Must be primary residence | No restrictions |
| Interest Rate | Dictated by lender; may be fixed or variable |
Jointly chosen by borrower and lender |
| Home Disposition | Home is either sold or outstanding mortgage paid off |
Home stays in the family |
| Disbursement schedule | Pick from 1 - 3 preset options | Flexible for life of loan |
| Financial Counseling | Mandatory HUD-approved | Not required |
| * Service fee is only assessed when a disbursement is made whether quarterly, monthly or annually. | ||
If you’re interested in finding out more, visit the Circle Lending website. In spirit of full disclosure, you should know that this is an affiliate link. Reverse Mortgage Information has joined Circle Lending’s affiliate program because we do believe their program offers a viable, money-saving option for many.
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