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Using Loans from Friends & Family to Pay for Long Term Care
| Definition |
Qualifications |
Costs |
| Pros & Cons |
Benefit Types & Limits |
How to Apply |
| Overview of Friends & Family Loans | ||
For the purposes of this website, Friends & Family Loans are defined as a formalized loan from friends or family that uses a 3rd party to make the agreement binding. The 3rd party provides the legal and administrative services to manage the loan for a relatively small fee.
One such organization is Virgin Money and they refer to the loan as a “retirement mortgage”. This is a privately funded loan or line of credit which a senior takes from a friend or family member in exchange for equity in the senior’s home. This arrangement is very similar to a reverse mortgage, except a friend / family member is acting as the lender. Because these loans are among family and friends, the terms are completely flexible.
The loan is repaid when the borrower (or last surviving borrower with couples) sells the home, passes away or when the mutually agreed upon term of the loan ends.
For the relatively few seniors that are fortunate enough to have friends or family with the financial resources to lend them significant amounts of money, this is a great option. The formal structure put in place by using 3rd party legal documents works well to make all parties feel comfortable with the process. Ownership of the home remains with family or friends and relative to a traditional reverse mortgage, the cost is very low.
Another very significant difference from a reverse mortgage is there are no restrictions that require a senior to reside in the home. For single seniors that are entering assisted living or skilled nursing, reverse mortgages are not an option and families usually have to sell the home. In a down real estate market, this might not be a desirable option.
There is freedom to structure the loan exactly as both parties would like. This includes the number of borrowers, the amount, interest rate and term. Therefore it can be designed appropriately for single and married seniors in good or poor health. Payments received by the borrower are not considered income and therefore are not taxable by the IRS.
Be Aware That:
The proceeds from a retirement mortgage may affect a senior’s Medicaid eligibility. One should consult with a Medicaid eligibility expert prior to making the decision.
Friends & Family Loans are Also Known As:
-Private reverse mortgages
-Privately funded reverse mortgages
-Friends and family reverse mortgage
-Retirement mortgages
-Privately funded reverse mortgages
-Friends and family reverse mortgage
-Retirement mortgages
Age Requirements
Unlike traditional reverse mortgages, there are no age restrictions to establish a privately funded retirement mortgages.Unlike traditional reverse mortgages, there are no age restrictions to establish a privately funded retirement mortgages.
Disabilities / Health Requirements
The health or disability status of the borrower plays no role in privately funded retirement mortgages. Unlike with reverse mortgages, seniors who health may require them to move from their home are still eligible.
Family Status
Seniors with any marital status can participate in privately funded retirement mortgages.
Financial Status Requirements
Seniors and lenders of any financial status can participate in privately funded retirement mortgages. Furthermore, even homeowners whose homes have existing mortgages are eligible.
Veteran Status Requirements
Veteran status does not play a role in privately funded retirement mortgages.
Geographic Requirements
The geographic location of the home does not play a role in a privately funded retirement mortgages.
Other Requirements
Home status – Unlike traditional reverse mortgages, the home does not need to be owner occupied or the principle residence. Homes with existing mortgages are eligible for privately funded retirement mortgages.
Types of Benefit Payout
Privately funded retirement mortgages can be structured however the participants choose. The funds can be received in a lump sum, monthly check, line of credit or any combination of those options.
Restrictions on How Payout Can be Used
There are no restrictions on how the funds from a privately funded retirement mortgages can be spent.
Benefits Amounts & Limits
Limits on privately funded retirement mortgages are determined only by the home’s value and because the arrangement is between family and friends, the participants can put any value they choose on the home.
Time to Receive Benefits
The time to process the arrangement is almost entirely dependent on how quickly the two parties can work. 2-4 weeks is typical.
This Source Can Help For
Any purpose the senior chooses including:
-In-home care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
Approximately $2,500 plus $10 / mo.
One can begin the process by filling out a form on Virgin Money’s website.
