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#156: Using a reverse mortgage to help nephew pay student loan


With no children of your own, you and your late husband always maintained a strong connection with your brother’s kids and grandkids in a neighboring state. Now, you’ve become aware, your older grand-nephew, who recently completed a Masters of Fine Arts, is facing somewhat of a financial crisis. As of this very month, he has had to resume payments of more than $1,200 a month towards his student loans. Since he, together with a partner, have recently opened a design studio, this is a financial burden of the first order for him. Your brother and sister-in-law are wrestling with medical expenses right now and truly cannot provide the needed help. The younger grand-nephew still in college, but your understanding is that his loans will not be affected now; you would be willing to offer help to him as well if and when the time comes.

Your general plan is to actually send your grand-nephew the exact amount each month starting this month, which will pose no problem financially.  However, you are not sure, going into next year, what the best source of funds would be, and you’re reluctant to draw down your investment portfolio or retirement plan money. You are essentially debt-free yourself, with the exception of about six months’ remaining payments on your mortgage.

A path to consider is a home equity reverse mortgage on your home.  So long as your intent is to remain living in that house, the equity can serve to a) pay off your existing mortgage b) give you the flexibility to withdraw money as needed to help your grand-nephews with their student loans. (As your grand-nephew’s new business grows, he might be willing and able to reassume payments on his student debt; you don’t know yet what the job situation might be for the second young man.)  The reverse mortgage will relieve you of the need to make monthly mortgage payments and help you avoid making withdrawals from your tax-deferred retirement accounts.

The withdrawals from the reverse mortgage line of credit will be tax-free,* and whatever portion of your available housing wealth is not being used will be credited with growth at the same rate as the interest being charge on the loan balance.

Whether or not the student loan forgiveness program is ever reinstated, as their great-aunt, you’ll be “standing in” for Uncle Sam when it comes to fulfilling your great-nephews’ loan repayment!

If you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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*Please consult a tax advisor.