HECM and the Sandwich Generation – Relieving the financial cost of older parents on children.

According to Pew Research, almost one-half of adults in their 40s and 50s fall into the Sandwich Generation, with about one-third (32%) of those saying they had given a parent financial support in the past 12 months. And when those middle-aged adults also have children to support, welcome to the Sandwich Generation.

Tom and Julie M. found themselves in just that position.  Trying to raise their children, avoid saddling them or themselves with student debt, and increasingly being called upon by their parents for financial assistance.

It wasn’t that their parents didn’t have some means, but unfortunately nearly all their savings were tied up in the equity in their home.  A common occurrence in today’s older households.

But, something had to give, because the fear of the unknown parental need was causing a great deal of stress between Tom and Julie and, of course, with the parents.

Enter McWhorter Reverse and Richard McWhorter, who was referred through Tom and Julie Morris’s financial planner.  After sitting down with the family, a Home Equity Conversion Mortgage Line of Credit was the perfect solution.

The parent’s home had a value of $750,000 and a small first mortgage of around $100,000, but unfortunately had a $50,000 home equity line of credit that was soon to convert to its amortization period.  Not a good situation on their limited income.

So, Richard proposed a $375,000 Home Equity Conversion Mortgage that paid off the $150,000 first and second loans and left for them line of credit that could be drawn upon whenever any necessary repairs or other unexpected expenses came up.

Why was the HECM their solution?

  • A HECM has no personal guarantees to the parents or heirs. The home is the sole collateral
  • A HECM is non-callable, provided one of the parents continues to live in the home as their primary residence and maintains the home, pays the expenses (taxes, insurance and upkeep).
  • The Line of Credit has an FHA guaranteed growth rate that is the same as the rate on the outstanding line balance and grows without regard to the underlying value of the home.
  • The HECM requires no monthly payments, freeing up the parents to take their previous mortgage payments and supplement their retirement benefits.

But, best of all, Tom and Julie far prefer knowing that the parents are self-sustaining, that they can not just survive, but live more comfortably now that their expenditures are covered by the increased cash flow as well as the home equity when needed.

For the Morris parents, they far preferred their equity being used to solve their cashflow problems than to have to ask their children for the help.  Tom and Julie far prefer it as well!

Maybe you, or someone you know, needs a similar success story.  Contact Richard McWhorter to see how the HECM Line of Credit may be perfect for you, too.

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