A reverse mortgage doesn't require you to make monthly payments, so there are no income requirements, as with a traditional mortgage or home equity loan. A reverse mortgage is a type of loan offered to people over 62 years of age and who have a sufficient amount of mortgage security, which is the difference between what is owed and what the home is currently worth. A reverse mortgage transforms that capital into payments. This money is not taxable, because it is considered a product of a loan and not an income.
No, reverse mortgage payments are not taxable. Reverse mortgage payments are considered loan income and not income. The lender pays you, the borrower, the loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of the three) while you continue to live in your home. Homeowners who don't meet the income requirements for a reverse mortgage may have other options to apply for equity loans.
According to Boies, the amount of money you can get from a reverse mortgage depends on several factors, such as the current market value of your home, your age, current interest rates, the type of reverse mortgage, your associated costs and your financial evaluation. While mortgage equity conversion mortgages have higher upfront costs, they are popular because there are no restrictions on how borrowers use income, no medical restrictions or income requirements. Interest on a reverse mortgage accrues every month, and even so, you'll need to have adequate income to continue paying property taxes, home insurance and home maintenance. Unlike a traditional term mortgage, the type used to buy a home, with a reverse mortgage you don't have to make recurring loan payments.
During the life of the homeowner, you are not required to pay anything to cover the balance of the reverse mortgage, as long as you use the home as your primary residence. If selling your home becomes a challenge and you don't find a buyer within that 12-month time frame, the reverse mortgage can be declared overdue, Micheletti says. In addition, while not all reverse mortgage lenders use high-pressure sales tactics, some use them to attract borrowers. Taking out a reverse mortgage can allow retirees to access the equity value of their home without having to make payments to pay off a home equity loan or home equity line of credit (HELOC).
A reverse mortgage provides a way for older homeowners to supplement their incomes during retirement or pay for home renovations or other expenses, such as health care expenses. Single-purpose reverse mortgages are provided by local and state governments and non-profit agencies, generally for homeowners with low to moderate incomes. According to the HUD, the purpose of this analysis is to “determine the ability of the mortgagor to meet their documented financial obligations with their documented income. Homeowners who choose this type of mortgage don't have to pay a monthly fee and don't have to sell their home (in other words, they can continue to live in it), but the loan must be repaid when the borrower dies, moves permanently, or sells the home.
In addition, if the value of the home appreciates and becomes worth more than the balance of the reverse mortgage loan, you or your heirs can receive the difference, Boies explains. You can opt for traditional refinancing, in which you borrow the same amount of money as the original mortgage, or you can get a cashout refinance, in which you can borrow up to 80% of the value of your home using a loan greater than the original. As with any mortgage, there are conditions to keep your reverse mortgage in good shape and, if you don't comply with them, you could lose your home. .