Monday, November 16, 2009

Reverse Mortgages May Be Too Expensive

If you're thinking of taking out a reverse mortgage so that you can afford to age in place, here's something you should consider: the interest is not deductible until you pay the loan off. Add this to the high interest rates charged, and you might be better off taking out a home equity line of credit. That means not only are the interest rates on such mortgages high, but they are even higher than you probably thought.

Check with the IRS, your person attorney or your accountant before you fall for pitches to take out a reverse mortgage.

Here is a quote from the IRS (http://www.irs.gov/publications/p936/ar02.html) :0

"Reverse Mortgages. A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II."

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