Reverse Mortgage Payments
A reverse mortgage refers to a type of home loan that enables homeowners, 62 or older, to transform a part of the equity in their homes into cash. As opposed to a standard mortgage in which the homeowner pays the bank, in a reverse mortgage situation, the bank is the one paying the homeowner.
Whether as a lump sum, a monthly advance, a line of credit or all three, “reverse mortgage payments aren’t taxable,” according to the IRS. Because they are considered loan proceeds instead of income, reverse mortgage payments don’t affect your Social Security or Medicare benefits either. Obviously, there are certain rules retirees need to follow to be able to enjoy the benefits of reverse mortgage payments, such as:
- Repairs, property insurance, and property taxes on the home have to be paid even after you’ve taken out a reverse mortgage.
- If you do not manage to pay off the reverse mortgage by the time you die, the loan must be repaid through your property, most probably by selling the estate.
- Similar to other loans, reverse mortgages accumulate interest and fees, therefore the loan balance will increase in time; in other words, what you owe will be more than what you initially received.
