Reverse Mortgages and Tax Deductions
April 6th, 2010
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- Reverse Mortgages, Insurance, and Taxes
- Nearly a Quarter of U.S. Homeowners Are Underwater on Mortgages
- Rebates For Seniors
- Should You Cash Out Home Equity with a Reverse Loan?
One of the benefits people with conventional mortgages can take advantage of is deducting mortgage interest payments on tax returns. But if you get a reverse mortgage you won’t have that deduction on your tax return.
What Is a Reverse Mortgage?
When you borrow with a reverse mortgage, you convert some home equity into cash. The money is received as a lump sum, a line of credit, or through installments. The amount you can borrow is based upon your age, home value, and current interest rates. There are no monthly mortgage payments and the loan isn’t due until you move or die. Compare quotes from several reverse mortgage lenders to get an idea of how much money you might be able to borrow.
Reverse Mortgage Interest
The balance on a reverse mortgage grows over the years. Interest accumulates and is added to your balance each month. Each time you use some of the funds, the balance on a reverse loan increases.
Only when the reverse loan is repaid do you actually pay the interest that has accumulated over time. After the reverse home mortgage has been paid, the interest can be deducted on an income tax return.
One reason you may be considering borrowing with a reverse loan is to have enough money for property taxes. When you get a reverse mortgage you are responsible for making property tax payments directly to your municipality. That differs from traditional mortgages, which are usually set up to allow property tax payments to be set aside in an escrow account until payment is due.
Even with a reverse mortgage you should still be able to deduct property tax payments. But keep in mind that as a senior citizen you could be eligible for some kind of property tax relief depending upon where you live. Check with your local government to find out what kind of program may be in place.