MAKING CHILD’S SECOND TIME A CHARM
“A wedding planned in your fifties is a different planning problem from the one the bridal magazines were written for,” Eleanor Wren explains in the If She blog, cautioning couples to “scale down before scaling up” in terms of spending. “Money is better spent buying back time than buying up a step,” Wren advises. “For brides scaling down from a young bride’s default, the savings often equal one significant piece of post-wedding spending: a first-class honeymoon flight, a small home renovation,” she adds.
It’s interesting that these last two items are precisely the ones with which you are contemplating helping your own daughter as she embarks on a second marriage (she was widowed fifteen years ago, and, after struggling to raise three children on her own, has finally found love again. In the process of moving from her apartment into her fiancé’s home, your daughter’s confided in you that she would have liked to make several design changes to the place. Given the costs of the wedding, any big expenditures would need to be postponed, they’d realized. They are in the process of planning a brief honeymoon trip, but, with an eye to the finances, have ruled out flying to Europe and will probably just enjoy a week in French Lick.
As a widow yourself, retired these last ten years, you’ve needed to be very careful to preserve assets and avoid irresponsible spending, but with this occasion representing so much hope and promise, you’re determined to make these two meaningful gifts. In order to avoid increasing the amount of the periodic withdrawals from your retirement accounts, you’re contemplating applying for a home equity loan of between $20,000 and $30,000. Obviously, there will be regular payments to make, but you think that might be the easiest way to finance the gifts, actually giving a lump sum to the couple for the honeymoon trip, then paying for the home improvement project as the work progresses.
You might find that using the equity built up in your own home in the form of a reverse mortgage, a more budget-friendly way to raise the capital needed to fund the home adaptation, plus treat your daughter and new son-in-law to some honeymoon “extras’. Just as would have been true with a home equity loan, you will remain responsible for property taxes, homeowner’s insurance, association fees, and overall maintenance costs on your own home. The big difference is that with a reverse mortgage, there will be no obligation to make monthly mortgage payments.* In fact as you make withdrawals from that line of credit (either to pay the contractors for the improvements on the couple’s home or, right away, fund the honeymoon trip, those withdrawals will be tax-free.** In fact, the “un-borrowed” portion of your equity will be guaranteed to grow at the same rate as that being charged on the outstanding balance.
As proud mother-of-the-bride, you’ll be turning those two “significant pieces of post-wedding spending” into one very meaningful gift.
*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
**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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