Crowdsourcing is not just for independent films or charity endeavors anymore. An online, peer-to-peer lending company is making headlines for a new reverse mortgage product that allows relatives to crowdfund home equity lines of credit, helping people arrange affordable loans, reducing tax issues, protecting relationships among relatives and keeping wealth within a family.
Boston-based lender National Family Mortgage has launched Caregiver Mortgage, a secured home equity line of credit crowdfunded by the relatives of a homeowner. According to the company, the Caregiver Mortgage offers many of the features and benefits that attract borrowers to reverse mortgages, but without the costs and restrictions.
A reverse mortgage is a home loan that provides cash payments based on home equity. Homeowners — in most cases, senior citizens and retirees — often defer payment of the loan until they sell the property, move or pass away.
In the latter case, the homeowners’ heirs either give up ownership of the home or refinance it to purchase the title.
There are benefits and drawbacks to taking out a reverse mortgage. On the positive side, reverse mortgages can enable seniors to better manage their finances. But on the negative side, many argue that reverse mortgages are complex financial products that many consumers do not fully understand, and there have been many fraud schemes that take advantage of seniors’ vulnerability.
In addition, reverse mortgage plans have been criticized for limiting consumer choice and giving borrowers “one-size-fits-all” options that can restrict eligibility based on age and location. Others have argued that many lenders charge high closing costs, interest rates and annual insurance premiums.
According to National Family Mortgage, the Caregiver Mortgage allows homeowners to receive tax-free cash borrowed against the equity in their home, knowing that their own family, instead of a bank, is building equity.
The product helps adult children purchase, refinance or renovate a home; helps a retired parent with cash-flow needs while protecting their own financial future; and transfers wealth between generations, the company said.
“The Caregiver Mortgage affords borrowers the resources and freedom to enjoy their retirement, while empowering lenders to provide financial support that is predictable, flexible and will be repaid,” said National Family Mortgage CEO Timothy Burke.
Each lender has the ability to set its individual credit line that will contribute to the collective credit line offered by all of the participants. While many lenders may intend to extend a fixed monthly disbursement, the Caregiver Mortgage gives lenders the option to make disbursements whenever needed — even daily, if necessary.
The line of credit becomes due and must be paid in full when the last surviving borrower passes away, the last surviving borrower sells the home or the term of the credit line ends.
“We’re offering U.S. families creative, helpful products with real lasting value,” Burke said. “Our peer-to-peer narrative is real; that is why we are so successful.”
National Family Mortgage says that to date, it has originated more than $290 million in loan volume and has kept more than $130 million in interest within families.