Keeping It Private

Jonathan Clements

FAMILY CAN BE A wonderful asset. Your parents, siblings and adult children might help with home repairs, offer free advice based on their professional expertise and take care of the dog while you’re on vacation.

When the circumstances are right, I think there’s an opportunity to take this even further. For instance, earlier this year, I provided my daughter with a private mortgage, which allowed her to purchase her first home. There aren’t many people I’d strike that deal with, but Hannah is both gainfully employed and financially responsible, so the risk seemed modest. To handle the paperwork and keep this as an arm’s length business deal, we had National Family Mortgage in Belmont, Mass., set up and service the mortgage.

Earlier this year, National Family Mortgage came out with a new product: a private reverse mortgage. To help their parents pay for retirement, adult children or other family members might provide a credit line that’s secured by the parents’ home. That gives the parents access to extra cash, while the adult children can be fairly confident they’ll eventually get their money back, plus interest.

Obviously, a private reverse mortgage is an option only available to well-heeled families. Still, for those who can afford it, it’s an intriguing possibility—and notable for how it changes our perceptions. Many folks resist reverse mortgages, because of the hefty costs, complexity, fear that they’re putting their homes at risk and a sense that they’re spending their children’s inheritance. A private reverse mortgage helps to ease these concerns, making the transaction far more appealing.

Indeed, I wonder whether there are other unpopular financial products that might catch on if they could be structured as family deals. Take immediate-fixed annuities, which many folks resist buying, because they hate the idea that they’ll purchase the annuity and then go under the next bus. Now, imagine the people on the other side of the transaction were your children, who would provide you with lifetime income in return for a lump-sum payment. Suddenly, if you go under the next bus, it would be your children who gained financially, not the insurance company—and the deal might seem a whole lot more compelling.

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