How Can a Reverse Mortgage be Used?

Reverse mortgages are for EVERY homeowner 62(+) and a great tool for providing cash flow for the affluent or those just getting by. Reverse mortgages continue their upward climb especially among the wealthy, who opt to take out a reverse mortgage for estate planning, tax obligations, or to pass on a portion of their estate today.

If you are planning for retirement or are already retired, the reverse mortgage may be an ideal option for you. Why are more and more Americans turning towards reverse mortgages for their needs? In many cases, these loans are great ways to get the cash that they need. Funds from these loans can be used to pay off medical bills or can be used to prepare for long term care. And, there is the flip side of all of these uses; many seniors take them out simply to enjoy life. They take trips and see the world. Perhaps they want to purchase a second home in a tropical area. Whatever you want to use it for, the money from reverse mortgages can help you do it.

Reverse Mortgages–Rising Debt Loan

Reverse mortgages are obtained to get cash from equity in a loan. A forward mortgage, regular mortgage, is consummated to purchase a home.  If you have a reverse mortgage you don’t make payments so debt rises. With a forward loan, payments are made so debt decreases.

Read more in “A Rising Debt Loan”

Are there tax consequences? What about my Social Security and Medicare benefits?

What are the tax consequences of a reverse mortgage? What about my Social Security and Medicare benefits?

Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as “liquid assets” if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.

Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely

Should I Get A Reverse Mortgage?

Many seniors and their heirs have a bad image of reverse mortgages for good reason. For many years, lenders shared in the equity and took control of the home with a deed in the lenders name. After many years of development, the reverse mortgage has helped many struggling seniors enjoy their golden years.

Reverse Mortgages are funded under a Federally Insured Program that thousands of SENIORS have used to supplement their retirement incomes. The program is a loan against the seniors home that allows them to convert the built-up equity into cash to be used anyway they wish.

The loan is based on age and the value of the home. As an example, at the age of 71, a senior with a home value of $235,000.00 or more, the program would given them approximately $140,900 as either a line f credit or in one lump sum. No repayment is required during the lifetime of the borrower or the spouse’s lifetime. Of more importance, the loan does not require payment from the borrower or spouse, but the payment will be made from the equity.

The cash the borrowers get from a reverse mortgage can be paid in several ways:

• All at once (in a single lump sum of cash)
• As a regular monthly payment
• As a line of credit (unused portion grows)
• As a combination of these payment methods

If a line of credit is chosen, the previously mentioned borrower’s credit line projects to increase by $54,325 to $195,225 over five years and by $129,598 to $270, 498 over ten years. The money the borrower receives can be used for any purpose the borrower wishes including:

• Paying off an existing mortgage (which is required if any exists) in order to eliminate monthly payments
• Pay off existing bills such as credit card debt
• Make home repairs
• Or simply enjoy their olden years with financial independence.

Before making a final decision, the senior should make sure their heirs understand that the bank does not take over the property. They merely record a mortgage as in a standard home loan

Reverse Mortgages—A Changing Marketplace

The recent real estate market surge and boomers qualifying for loans in 2008 have changed the outlook for many reverse mortgages. Homeowners are finding more ways to use their equity and lenders are developing new loan packages to allow more flexibility in payment streams and higher loan amounts. The first boomers will be 62 on January 1, 2008. It is really a changing market.

 

Read more…

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Is PMI Tax Deductible?

Apparently, the word is out that Private Mortgage Insurance (PMI) can be deductible for borrowers consummating a loan in 2007.

What is PMI? The insurance premium paid by borrowers whose loan is greater than 80% of the appraised value. If you have less than 20% downpayment, chances are your lender will require PMI.

What does PMI Cost? PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The borrower should continue to follow the loan amount and value of the home so that when the loan to value ratio dips below 80 percent, the PMI is discontinued.

For more information, read Tax Deductible Private Mortgage Insurance (PMI).