Reverse Mortgages for the “Sandwich Generation"
We’ve all heard the term “Baby Boomer,” but who’s familiar with “Sandwich Generation?” Basically, the term was coined to reflect the fact that Baby Boomers are sandwiched between aging parents and older children, both of whom have come to depend on them financially. In this context, reverse mortgages would seem especially well-suited for Baby Boomers.
- Eliminates mortgage payment
- Free up cash to modify home for disabilities
- Pay for nursing care
- Pays YOU each month
- Relieves the financial squeeze
The financial circumstances of Baby Boomers are somewhat unique: “Today, four out of five seniors own their own home outright…Even as they do, they have a lower median income than any demographic group.” This is compounded by the fact that they might have two generations of dependents to take care of, the older of which have long since retired while the younger is still a few years away from being financially stable and able to live independently. Longer lifespans and changing cultural norms (whereby it is acceptable for recent college graduates to live at home for several additional years) mean that this could become the norm. In other words, “Sandwich Generation” might apply to those at or near retirement age for the foreseeable future.
While the financial options of the Sandwich Generation certainly aren’t limited to obtaining a reverse mortgage, it nonetheless is an attractive possibility for a few reasons. First of all, the main issue of those who fit the profile of the Sandwich Generation is one of liquidity; they are house-rich and cash-poor. While they might have enough cash to support themselves, they may not have enough to simultaneously support their parents and children. A reverse mortgage would provide them with ample cash to take care of their children until they are financially independent and their parents until they pass away.
Moreover, unlike other possible solutions, a reverse mortgage would allow the primary borrowers (and their kin) to remain in the same property even as they are drawing down its equity. This is a crucial benefit for Sandwich borrowers, since multiple generations are probably living under the same roof. For these borrowers, downsizing into a smaller home to free up available cash probably isn’t a realistic option.
Of course, reverse mortgages are not without risks and drawbacks, especially for the Sandwich Generation. Such borrowers are probably very close (or just past) the age of retirement, which means that they can expect to live another 20 years if they are healthy. While the Reverse Mortgage would certainly enable them to help their parents and children for as long as they require such help, it would also expose their finances to considerable strain. 10 years later, they might have spent all of the proceeds from the reverse mortgage and exhausted a large portion of the equity in their homes, leaving them dangerously vulnerable in the event of a crisis (health or otherwise).
That is why it is vitally important that Sandwich Generation reverse mortgage borrowers (and all borrowers for that matter) to have solid financial plans which address not only their current financial situations but also their future circumstances. While it is admirable that borrowers would want to help support their loved ones, they must make sure that they have the means to first support themselves, now and in the future. It is not enough that a reverse mortgage will tide one over temporarily. Rather, borrowers must have the ability to continue to support themselves even after the reverse mortgage has exhausted itself.
For potential borrowers that pass this test and meet all of the other requisite criteria, a reverse mortgage is worthy of consideration.