HOME EQUITY HELPS CREATE LIVING SPACE FOR TWO — GENERATIONS
For years now, even before aging in place was a “thing,” you and your significant other have pictured spending the rest of your lives in the Indy neighborhood where you’ve lived since the early years of your marriage. With your retirement planned for next year (his coming up at the end of this one), you’ve already begun the very minor upgrades needed for your ranch-style home, which you’ve always kept in excellent repair.
Your one daughter, who is divorced, has worked for decades as a traveling nurse. She is now set to move back to Indiana next spring, having accepted a position (thankfully, a non-traveling one!) at a hospital here. In preparation for her arrival, you’d begun driving around, scouting out homes within convenient distance (convenient to her new office and selfishly of your own place!).
A few weeks ago, invited to a book club meeting on the northwest side of town, you were shown a possibility you hadn’t considered. Your hosts’ home had what they called a “carriage house” on their grounds, a very charming, fully furnished small home that the hosts were renting out as an Airbnb. That visit planted a seed in your minds: Why not have one of those small homes built on your own property for your daughter to live in? (Much to your delight, she liked the idea, although she didn’t want her parents going out on a limb financially.) You’ve already begun investigating the laws for Marion County and – it’s permitted! Now, after meeting with several builders and gotten cost estimates, you’re contemplating a second mortgage on your own home in order to avoid the tax effects of cashing in a substantial chunk of your investments, or the need to claim social security benefits earlier than you’d planned.
You might find a reverse mortgage a more budget-friendly and tax-friendly way to raise the capital needed to create the ADU (Accessory Dwelling Unit) for your daughter. As would be true if you took out a second mortgage, you’d remain responsible for property taxes. homeowner’s insurance, association fees, and overall maintenance costs on your own home. However, with a reverse mortgage, so long as at least one of you continues to occupy your home, there will be no monthly mortgage payments. As you make withdrawals from your line of credit to pay the contractors, those will be tax-free.* In fact, the un-borrowed portion of your housing equity will be guaranteed to grow at the same rate as that being charged on the outstanding balance.
There will undoubtedly be many details to work out with your daughter as well as your estate planning lawyer and tax adviser, but the beauty of the plan is that you’d be using your housing wealth to create housing for your daughter convenient to her place of work and close to you!
*Please consult a tax advisor.
David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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