Tax Reverse Mortgage Help

Wednesday, March 07, 2007

Reverse Mortgages are becoming a popular financial planning tool for many seniors, however their are some tax questions that should be shared.

Question 1: If a customer has a balance on a HECM credit line and sends in a payment, will the payment be applied to the credit line - thus making that amount available for future withdrawal and adding to the money that is growing at 2% over the one year T-bill?

Answer: The total loan balance on a HECM generally includes fees, MIP, interest, and principal. For tax reporting purposes (Form 1098), each payment must be applied against a category (or categories) within the loan balance. For repayment purposes, a payment reduces the total loan balance. As the total loan is reduced, more money for future borrowing purposes is made available to the borrower usually through the line of credit.

With the HECM 150 (1.5% margin) product, the line of credit growth rate is 2.0% above the index; while with the HECM 100 (1.0% margin) product the growth rate is 1.5% above the index. I believe that the growth rate on the HECM 125 is 1.75% above the index.

As to the amount of deduction available to a borrower in any tax year, a borrower should seek the advice of a competent and experienced tax advisor.

Question 2: How will the income from the Reverse Mortgage affect my taxes, social security or other benefits?

Answer: Proceeds from a Reverse Mortgage are not taxable, it's your money (equity), not taxable income. Nor will your regular Social Security or Medicare be affected. The impact, if any, on other federal, state or local assistance programs should be discussed with your financial advisor or the program sponsor.

Call 1-888-973-8377 to speak with a Reverse Mortgage Specialist free of charge.

You can also visit ReverseMortgageNation.com, a national Reverse Mortgage Lender.