About Reverse Mortgages? Are They Really Tax Free Income For Senior Citizens?

The idea of the reverse mortgage loan is, that you can get monthly cash out from your home equity. When you think about reverse mortgage, that is the main thing, but there are some side benefits, like that it is a tax free income for a senior citizen.

It really sounds too good about reverse mortgages, that they offer free lunches. But if you are age 62 or over and own your home, which has equity left, you are eligible for a reverse mortgage loan. The lender does not look at your income, nor credit information, because nothing will be paid back on a monthly basis.

1. About Reverse Mortgages, Are They Really Tax Free.

Actually you have paid taxes once, when you earned the money with which you paid the mortgage or cash with which you paid the price of your home. Now, when you have decided to take some of that equity back, you can do it tax free. That is how do reverse mortgages work. When you take a reverse mortgage loan, it does not influence on your social security or Medicare entitlements.

2. It Is Useful To Know About Reverse Mortgage, That You Stay As The Owner.

When you have taken a reverse mortgage loan, you will still be the owner. This means that you will enjoy about the annual value increases, which will be paid to you on the closing. But the nicest thing is, that the lender pays you monthly a tax free income.

3. About Reverse Mortgages, There Are 3 Loan Types.

A single purpose reverse mortgage loan. This is meant for a lower income people and like the name says, it is meant for a specific purpose, which the lender decides.

Home equity conversion mortgage, HECM. This loan is insured by the Federal Government and backed by the Department of Housing and Urban Development, HUD. These have higher upfront costs. No income or credit information needed.

When you apply this kind of a loan, you have to meet a goverment approved housing counselor. This is actually very useful, because this expert can explain all details and answer your personal questions about reverse mortgage alternatives also.

HECM alternative has one great benefit. In case, that the borrower has to go to the nursing home or other medical facility, the loan terms allow him to live away from the house up to 12 months before the loan becomes due.

A proprietary reverse mortgage. This loan type comes from private companies and are not insured by the goverment. The upfront costs are higher than with the single purpose reverse mortgages.

It is a normal thing about reverse mortgages, that the lender charges the origination fees, closing costs, insurance premiums (for insured loans) and service fees, which are all set by the lender.

All costs will be told you before you sign the contract. By the way, the interest rate can be fixed or variable. If you choose a variable one, it will be tied to some financial index.

From the reverse mortgages the HECM is the most flexible, because there you can choose, how you will take the money out. You can take it as fixed monthly sums during a set period of time, as a credit line, as a lump sum or as a combination of all three.

The key thing, and a really important one, is to read about reverse mortgages and to understand all details and also alternatives to the reverse mortgages. The engagement is a long term one, so do not let the monthly income possibility to mislead your judgement.

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