Reverse Mortgage Loan - A Tax Free Alternative
The idea of the reverse mortgage loan is simple
. If a senior needs urgently cash, but cannot stand any more monthly loan payments, he can turn a part of his home equity into cash money with the reverse mortgage loan. There is no monthly back payments and the lender pays either as a lump sum, monthly installments, credit line or as a combination of all these.
1. The Reverse Mortgage Loan Does Not Change The Ownership.
Some seniors have fears, that the lender, the bank, can take their homes with the reverse loan. That is not true. The loan does not change the ownership of the home. The compulsory mortgage insurance guarantees, that a borrower will never owe more than the value of the home.
The mortgage loan, the interests and all costs will be paid back, when the loan will be closed. This happens, when the last borrower will sell the home, move away or pass away. Then the home will be sold and the costs will be paid from the selling price. If they will not cover the whole amount, the mortgage insurance will pay the missing part.
2. A Reverse Loan Is Tax Free.
In a situation, where a senior needs cash money urgently, one solution could be to sell the home. However, thinking the taxes this could be a costly alternative. The tax rules vary state by state, but in most states the reverse loans income is tax free, if used during the same month as received.
3. The Age Of The Borrower Influences On The Loan Amount.
How much can a senior get? The appraised value of the home, the interest rate level and the age of the borrower influence on the amount. The ceiling is $ 625.000, says the law. As an example, a borrower age 62 can get around 30 % to home equity, but a 95 year old 80 %.
4. The Mortgage Insurance.
This is a very good invention. It is an obligatory insurance, which guarantees, that a lender can get his capital, interests and all other costs. If the home selling price does not cover all the costs, the rest will be taken from the insurance. So a borrower will never lose his or her other assets nor the heirs will never inherit the debt.
5. No Monthly Back Payments.
If a senior has a normal mortgage left, he has to pay that away with the reverse loan. This will release money for other purposes. The idea of the reverse loan is, that a senior will get more disposable money, which means, that there is no monthly back payments. All will be paid back, when the loan will be closed. The reverse loan uses the equity of the home and can transform a part of that into cash money according the schedule the borrower will choose.
by: Juhani Tontti
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