A new type of mortgage launched by National Family Mortgage, a Massachusetts-based marketplace for peer-to-peer loans, is offering a homeowner’s own family, rather than a bank, the chance to receive tax-free cash borrowed against a home equity line of credit (HELOC), according to a recent story in the Washington Post.
Starting May 1, the Caregiver Mortgage is a HELOC that is crowdfunded by a homeowner’s relatives, ideal for “helping people arrange affordable loans, reducing tax issues, protecting relationships among relatives and keeping wealth within a family,” notes Inman. Each lender can limit his or her own individual credit line, contributing to the total credit that all the participants offer. This type of reverse mortgage allows lenders a flexible disbursement schedule; they can even make daily disbursements, if the situation calls for it.
The Caregiver Mortgage is one example of a reverse mortgage, a home loan that gives cash payments based on home equity. In contrast to the Caregiver Mortgage, institutional reverse mortgages tend to limit consumers’ choices and fail to offer customization. They are also associated with high closing costs, interest rates and annual insurance premiums, according to MortgageOrb.
The time to fully pay off the line of credit comes “when the last surviving borrower passes away, the last surviving borrower sells the home, or the term of the credit line ends,” notes MortgageOrb. With reverse mortgages, homeowners, generally senior citizens and retirees, often put off payment of the loan until they sell the property, move or pass away. But with the Caregiver Mortgage, the homeowners’ heirs have two options: give up ownership of the house, or refinance it to buy the title. And until that time comes, this mortgage allows homeowners to receive tax-free cash borrowed against the equity in their home, with the knowledge that their family–not a bank–is building equity.
National Family Mortgage has funded $290,262,173 to date in loans, with a total interest of $131,414,712 kept in the family. Their smallest loan was $11,100, while their largest loan was $2,000,000.
Timothy Burke, CEO of National Family Mortgage, says,
The Caregiver Mortgage encourages family participation. Our transparent loan management platform allows lenders to track their disbursements, add notes or receipts, and calculate year-end tax reports. Proper documentation sets clear expectations and prevents future misunderstandings with the IRS or between family members.
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