Contributed Content. Written by Garnett Bruce.
Garnett Bruce is the Digital Marketing Project Manager with Finance of America Reverse (FAR) LLC, a lender that specializes in reverse mortgages. FAR ranks among the top reverse mortgage originators in the United States. FAR is deeply committed to empowering adults age 62 and over with the tools they need to achieve financial independence.
My story is not unlike many others: I have a tight-knit family who has made many sacrifices to support my aspirations which included attending a traditional university and earning a degree before entering the workforce. One of their greatest sacrifices, if not the biggest sacrifice, was helping to pay for my college education.
Many people have families like mine that want to help: They are willing to do whatever it takes to achieve a diploma that signifies the recognition of your hard work in school, but this can be a monumental burden on many aspects of the family. Oftentimes, families don’t know where that money is going to come from or how they can maintain their own goals and plans for their life, finances, and retirement after helping a loved one pay for college.
The price of higher education has continued to rise each year. In October 2016, the Washington Post stated there was a 2.4% increase in annual tuition for a four-year college after inflation was considered. The same report also cited a 3.6% increase in annual tuition for a private university after inflation.
A report by SimpleFi states 34% of friends and family are helping to pay for college education in today’s market. Many people choose to help by borrowing against their retirement and investment portfolios which can cause large penalties and potentially put people at risk for not having enough saved for their own retirement. Others opt to take out high interest loans to help supplement college education costs for their children or grandchildren.
A study conducted by LIMRA Secure Retirement Institute shows that nearly one third of consumers in their research would help pay for college by reducing the amount they are putting away for retirement.
Is a goal of yours to help pay for your children’s and/or grandchildren’s higher education? You’re not alone. Michael Ericson, author of the LIMRA Secure Retirement Institute: Many Would Put off Retirements to Help Pay for College states, “Four in 10 consumers (with children or grandchildren) feel an obligation to foot the college bill, so this is having consequences in other areas of their lives where money is concerned. In addition to eroding retirement confidence, these loans are causing Americans to reduce their discretionary spending.”
This is a large decision that can affect both parties for the rest of their lives and may be one of the largest financial burdens a person undertakes in order to enhance their children’s and grandchildren’s education and possible earning potential.
If you think that borrowing from your portfolio, tapping into your retirement savings, or taking on high interest loans are the only ways you can help financially support someone looking to further their education, think again. There is another source of funding oftentimes overlooked that, for many older homeowners, could offer be a better solution.
By taking out a HECM (Home Equity Conversion Mortgage) reverse mortgage, you may be able to help your loved one pay for college education costs and also allow your current investments to potentially grow in their portfolios by leaving them untouched.
A HECM allows eligible homeowners 62 and older (with a significant amount of home equity) to tap into their equity and use the proceeds for whatever purpose they choose. The home must be their primary residence. If you are eligible for a HECM, you will no longer have to make monthly mortgage payments.*
There are many benefits and securities of HECM reverse mortgages that have been established to protect the borrower.
- FHA Insured;
- Require independent counseling session so the borrower has access to all unbiased information and rates about the product;
- Non-recourse loans: This means that a borrower and his or her heirs or estate will only be responsible for repaying 95% of the appraised home value, rather than the loan balance if that balance is greater than the home’s worth at the time of sale.
- Financial assessment to assure that the borrower can meet loan obligations;
- No payments until the loan becomes due.*
I am very fortunate that I had the support of my family. This is a topic that a lot of families are struggling with as people aren’t yet aware of the options between taking vast sums out of savings and portfolios, or taking on potentially high-interest loans to help with education-related expenses.
A reverse mortgage is another option to consider that could give you the best of both worlds by allowing you to help pay for college costs while also allowing you to cover other financial goals.
It is very important to take the time to consider all the options and how they might fit into your plan and retirement dreams. If it is part of your plan to help a loved one pay for higher education and you’re interested in learning about how a reverse mortgage could help you make this investment, contactFinance of America Reverse LLC.
* The home must be the primary residence and the homeowner must live in and continue to maintain property charges including property taxes, fees, hazard insurance and maintain the home.
This material is not from HUD or FHA and has not been approved by HUD or any government agency.
©2017 Finance of America Reverse LLC is licensed in 49 states and D.C. not available in AK |
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