Quote for the Day

Shot:

“For clients who are planning to stay in their homes, a reverse mortgage can be a good source of needed cash flow. This allows them to tap their home equity and supplement their retirement income.

“Additionally, most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are non-recourse loans insured by the FHA. If the balance outstanding exceeds the value of the property, the government covers the difference and the homeowner will not be evicted from his or her home.”

Chaser:

“Fees and costs associated with many reverse mortgages are common and in some cases can be pretty steep. There can also be servicing fees during the life of the loan. They will be included in the amount owed when the mortgage comes due.

“Many reverse mortgages have variable interest rates. The amount you owe could increase significantly if inflation returns and interest rates rise drastically from current low levels. Note that an adjustable rate can work in the borrower’s favor as well in terms of allowing them to borrow funds both at closing and at a later date in some cases.

“The interest on a reverse mortgage is deductible, but only to the extent that it is actually paid. Most reverse mortgages are never repaid, so there is no interest deduction unless the borrower actually writes a check for payment, of which some will be interest and principle. The limit to which an interest deduction can be taken is up to the repayment of $100,000 in principle. If the loan is paid off after the death of the borrower, than whoever pays off the loan—generally either the heirs or the estate—can deduct actual interest paid.

Both quotes are from Reverse Mortgages: When They Make Senseby Roger Wohlner

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