The Tax Free Reverse Mortgage Loan - Or Is It
The reverse mortgage loan has several benefits
, of which the feature, that it has no monthly back payments is maybe the most important one. A senior can even pay away the usual mortgage with the reverse mortgage and get even more cash money every month.
Some seniors may be interested, whether the reverse mortgage has any disadvantages thinking about the social benefits, like Medicaid, and the concern is justified. It may influence on your chances to get the social money, so it is wise to plan the Medicaid carefully.
The financial planning means, that you have to transfer the money away to some other destination, so that you are not anymore the official owner of that money. Actually the U.S.Congress has set the strict rules for these transactions including the penalties to those, who break the rules.
The reverse mortgage payments can influence on your eligibility for the Government benefits, like Medicaid. A general rule is, that the income from the reverse program is not counted as income, if the money will be spent during the same month as it has been received.
The basic nature of the reverse loan is, that it will be taken against the equity of the home, there are no monthly back payments and the whole loan capital, interests and other costs will be paid back, when the loan will be closed. That happens when the last borrower will sell the home, move away permanently or die.
The interest rate can be either a fixed one or a variable one. The behaviour of the fixed one is clear. The variable one is tied to some index and follows the development of that index, saying it will vary during the running time of the loan.
Because the borrower will not pay anything on a monthly basis, including the interests, he cannot deduct any paid interests during the running time of the loan. When the loan will be closed, the interests are paid. This will happen, when the last home owner will move away permanently, will die or will sell the home.
At this time the home will be sold and the loan capital, interests and other costs will be paid away. After this the borrower can deduct the paid interests in the taxation. As said earlier it is important to note, that because the reverse mortgage payments are not income, but come from the home equity, they are parts of the loan, the interest they include can be deducted.
Because the running time can be a long one, usually years, the incurred interests can form a high sum of money, also the tax deduction can offer a substantial sum of extra money. To get more detailed information, it is wise to go and meet the federal reverse mortgage counselor, who can calculate the precise sums. Before you go to the counselor meeting, either personally or by phone, it is useful to make a question list about all possible things, you want to know.
by: Juhani Tontti
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