A home for family

Illustration

How two generations bought one home

Her parents wanted them close. They funded the policy; she and her husband carry the mortgage.

The parents fund: $1,350,000the policy contribution
The couple pay: $18,300.00a month, years 1–15
From year 16: $416,250a year, projected

The situation

The parents intended to leave their daughter money eventually. They preferred to see it used now, on a house near them, and to give it a shape rather than write a check. The couple could carry the mortgage on their own income, and preferred not to commit the capital alone.

The structure

The couple put $900,000 down and took a $3,600,000 interest-only mortgage at $18,300.00 a month. Her parents funded the $1,350,000 policy contribution. The policy insures the daughter. A younger insured gives the policy a longer runway, which is one reason the insured does not have to be the person writing the check.

In year sixteen she will be 53. The policy is then projected to provide $416,250 a year against a mortgage payment of $366,884 a year, through year thirty, and to continue afterward.

What it gave them

The parents see their capital at work now, in a home ten minutes away, and it has a shape: a policy on their daughter’s life that is designed to carry the mortgage in its second half.

The couple pay $18,300.00 a month for fifteen years, against $21,815.81 on a traditional loan. From year sixteen the scheduled payment is designed to be met from projected policy cash.

How it was underwritten

As one transaction across two generations, and with margin: projected policy cash of $416,250 a year stands against $366,884 of mortgage payments. The plan is reviewed every year after closing.

How the parents’ contribution is made, whether as a gift, a loan or through a trust, was settled with the family’s attorney before anything was signed.

Why it suited them

Three things were true at once: capital in one generation, earning years in the other, and a shared wish to stay close. Who owns the policy and who its beneficiaries are were decided with their estate attorney.

The numbers

Line by line

Illustration

MeasureTraditional mortgageFamily Office Mortgage

At purchase

Down payment$900,000$900,000

Policy contribution—$1,350,000

Total committed$900,000$2,250,000

Years 1 to 15

Monthly mortgage paymentProgram: interest only$21,815.81$18,300.00

Mortgage balance at year 15$2,568,775$3,600,000

Years 16 to 30

Monthly mortgage paymentProgram: principal and interest over 15 years$21,815.81$30,573.68

Projected policy cash, per year—$416,250

What you pay, per month$21,815.81$0 projected

Projected cash left over, per year—$49,366

Year 31 onward

Mortgage paymentsNoneNone

Projected policy cash, per year, through year 62—$416,250

Quoted remaining death benefit—$2,925,000

The whole picture, through year 62

Total you put in$8,753,692$5,544,000

Mortgage payments made by the policy, projected—$5,503,263

Projected policy cash paid to you, years 16 to 62—$14,060,487

Cash received, less cash put in−$8,753,692+$8,516,487 projected

Illustration. Both cases assume a 6.1% mortgage note rate, a 20% down payment, and no investment of money kept or saved. The program’s projected policy cash is a quoted figure scaled to the policy contribution; it is not derived by this model and is not guaranteed. The base case assumes no further personal premiums, financing interest or bank-exit payments. Property taxes, home insurance, maintenance, closing and advisory costs and tax effects are excluded.

How each line is calculated

Traditional payment. Principal × r ÷ (1 − (1 + r)⁻³⁶⁰), where r is the annual rate divided by 12.
Program, years 1 to 15. Principal × r. Interest only; the balance stays at $3,600,000.
Program, years 16 to 30. The full $3,600,000 amortized over the remaining 180 months, which is why the payment is 67% higher than in the first fifteen years.
Projected policy cash. $370,000 a year on a $1,200,000 contribution in the reference case, scaled in proportion. It covers 113% of the later mortgage payment as illustrated.
Total you put in. Initial capital plus every mortgage payment not funded by projected policy cash.

Their cash position, year by year

Everything paid in, less projected policy cash received.

+$8.52M−$8.75MEvenYear 42

Family Office Mortgage, projected Traditional mortgage

Try it with your numbers

Find out if it is open to you.

Three ranges tell you where you stand against the published criteria. If you meet them, Kent Chesley will speak with you personally.

Prefer to talk? Call him directly at 949-293-8686.