Reverse Mortgage Interest

In my humble opinion (IMHO), only if you cut a check and send it to the lender specifying that the money is a payment on interest. Because interest accrues on a reverse mortgage, you didn't pay interest. One may ask, if you have income from which you can deduct interest, why did you do the reverse mortgage?

Any payments sent to the lender can offset whatever the money is sent in for. A payment for interest would reduce your loan balance by the amount sent in.

Otherwise, only at the time you sell the property, when the loan is paid off, would you likely deduct any interest. But, would you have any income to deduct it from?

A Reverse Mortgage is considered income, not an expense.

Each situation is unique and you should consult a tax advisor, but generally, reverse mortgages provide tax-free income through the equity release from your home.

Does the 3% interest compound monthly or is it simple interest

Does the 3% interest compound monthly or is it simple interest

Answers to both questions-

Reverse Mortgage interest as a tax deduction- Generally, reverse mortgage interest is not tax deductible, as you are not actually paying it. There is a loophole, although most folks wont be able to take advantage of it. Most folks file their income tax on a Cash Basis, if you were to file on an accrual basis, the interest may be deductible.

Also, if you should refinance or sell the home down the road, the interest would then be a tax write off, as you paid it. This will show up as 1098 Mortgage Interest, and should represent ALL of the interest that has accrued on the loan. Tell your heirs and estate to look out for this if you pass while having a reverse mortgage, as it will be a write off for the estate. If you should refinance your reverse mortgage with either another reverse mortgage or traditional mortgage, or if you sell your home, you will get the 1098. Try to plan according, so that you can use this write off to offset any income from investments.

Interest accrual- The current interest rate on the HECM CMT and LIBOR programs are both very low right now(March 2009), from the high 2% and low 3% range and up depending on which margin you end up with. (Try to get the lowest margin on the market). That interest rate is represented as an Annual Rate, and you would accrue 1/12th of it each month. That interest would be posted to the principle amount each month, and the next month you would accrue interest on the new balance, and so on and so on.

Please let me know if you have further questions.

Tamera Field
877-632-7890
tammyf@goldengateway.com

Also- I dont believe you can stipulate how you want your payments applied on a reverse mortgage, the lender decides for you.

Tam