How The Reverse Mortgage Loan Will Effect My Taxes And My Heirs Inheritance!

Lets touch on the tax issues first.

I am not a tax professional so please consult your tax preparer before making any tax decisions.

With that said; A reverse mortgage is a loan, a very unique loan.

As a result, the proceeds from a reverse mortgage loan are not considered taxable income by the IRS and it will not have an effect on your social security and the interest on a reverse mortgage is tax deductible.

However, the tax deduction can only be claimed in the year in which the interest is repaid.

As a result, the size of the potential tax deduction builds up until the year when the reverse mortgage loan is repaid by the homeowner or their estate.

The reverse mortgage loan has no effect on your obligations to stay current on your property taxes, homeowner's insurance, etc.

So, the homeowner must continue to pay these costs, you could request that these costs be put into an escrow account with the reverse mortgage, but this practice is rare due to the size of the equity that is set-aside.

What about My Estate and My Heirs Inheritance?

The big concern for homeowners considering a reverse mortgage is making sure that their heirs are not saddled with debt and will inherit the home.

When the home is worth more than the reverse mortgage balance your heirs can refinance the reverse mortgage into a traditional mortgage and keep the home or the heirs/estate can sell the home, pay the balance of the reverse mortgage, and keep the remainder of the home's value.

The heirs/estate have six months to sale or refinance the home with the addition of two 90 day extensions-plus if needed, giving your loved ones one year-plus.

For example:

* A $300,000 home is inherited by the estate with a $125,000 reverse mortgage balance.
* The heirs decide not to keep the home.
* The heirs sell the home for $300,000, pay the lender $125,000, and pocket $175,000.

When the home is worth less than the reverse mortgage balance the heirs or the estate have no obligation.

The home can be turned over to the lender who will sell the home to repay as much of the balance as possible or the heirs can refinance the reverse mortgage into a traditional mortgage and keep the home.

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