In keeping with my solemn pledge to provide unadulterated, real-life reverse mortgage information, it’s incumbent upon me to follow-up on occasion with the best real-world scenario types of questions that I get from my clients.
I’ll admit, in my campaign to provide a comprehensive knowledge base of reverse mortgage information (which you can reference all in one place here), I haven’t been as “Johnny-on-the-spot” with my FAQs as I had promised in previous articles.
For those of you searching for more of those useful tidbits, I apologize…
But, that ends here.
Today, I have yet another post dedicated to actual questions that are pulled from my conversations with both potential borrowers and clients.
Keep in mind…
These aren’t your normal, boiler-plate FAQ definitions with bland, dictionary-type explanations like you find on every other reverse mortgage site.
I will delve into these issues in-depth with as much clear, plain-English explanation as I can muster.
I will also, when applicable, provide real-world examples for you to draw upon so that you can generate a mental picture of what you might be able to expect with you reverse mortgage experience in the same (or similar) situation.
I encourage you, as you do your necessary reverse mortgage research, to bookmark (that’s Control + D on both Google Chrome and Internet Explorer browsers) any of these FAQ posts for reference so that you can refer back to them and/or ask questions as necessary.
Many times, you can find yourself bogged down in a mountain of open websites and forget where you saw a small nugget of super important information that may be end up being the key to your investment decision.
In the meantime, please feel free to contact me anytime (email: [email protected] or via any of the methods mentioned at the end of this article) and ask as many questions as you feel necessary.
What sets the perfect reverse mortgage originator for you apart from any others is her/his ability to connect with you and explain things in such a way that you walk away feeling as if you’ve made a solid, beneficial financial investment.
So, with all of that in mind, let’s jump into some additional, important client FAQs…
Can a Reverse Mortgage Be Refinanced?
Inevitably, I always get this question near loan closing.
Savvy borrowers will want to find-out their options long before making the decision to invest in such a large-ticket loan product.
I highly encourage exactly these types of questions.
The short answer is yes, it is possible.
The long answer, or course, is a little more complicated.
As with most issues in life, it all depends…
For the most part, this situation really only makes sense if you have taken out a lump sum as your payment option at closing, meaning that the distribution of your funds has already been satisfied.
So basically, if you took all your money out based on a certain amount of equity with a particular interest rate at closing of the loan, then later on down the line, you might find that there’s an opportunity to leverage increased equity in your home by refinancing your reverse mortgage.
There are some obvious advantages to this and some disadvantages.
First off, you will get to benefit from the increased equity available in your property.
On the other hand, you will again have to go through the reverse mortgage loan process and pay closing fees.
The only difference this time around is that you will only be paying a mortgage insurance premium (MIP – required for all reverse mortgages) based on the increased equity in your home, not its total current value.
To put that all in perspective, let me provide an example:
- Let’s say that Sam and June took out a reverse mortgage with a lump sum payout of $200,000 in January of 2015.
- Their agreed upon interest rate was 3.5%, their home value was appraised at $350,000, and they paid closing cost (including a 2% MIP) of roughly $12,250.
- In 2018, they notice that home comps in their neighborhood have gone as high as $450,000 and interest rates across the board haven’t changed significantly.
- They decide that they would like to refinance their reverse mortgage and possibly receive additional funds, but they need to ask the question: Will refinancing cost more than keeping our current loan?
- There is an easy way to do the math:
- Considering that the home has increased in value by $100,000k, they will pay a MIP based on the new equity, not the entire appraised value of the home.
- Other closing costs (except for the MIP) will remain roughly the same, so they’re looking at a new closing costs of about $7,250 (far less than original closing costs).
- It is determined that they are able to borrow $80,000 of their new equity via the reverse mortgage.
- So, in this scenario, it makes sense for them (mathematically) to do so as they will be able to free up more funds without it costing more than the transaction is worth.
- Basically, if you can take out enough money without it being eclipsed by the new closing costs (including MIP), then you can refinance.
So, while you CAN refinance, it takes a little bit of research into your property value and some arithmetic to figure out whether it’s a good idea and when it’s a good idea.
You can always contact me and I will walk you through the process of determining which option is best for your financial situation.
Are Reverse Mortgages Tax Deductible?
Because we’re looking down the barrel of tax time again, I get this question quite often.
The short answer here is No, not until you pay off the reverse mortgage loan.
The reasoning behind this is as follows:
- Because when you have a reverse mortgage you don’t actually make payments on the interest being accrued, the interest isn’t tax deductible.
- Interest on any sort of loan isn’t deductible until you make payments towards it.
- Also, with a reverse mortgage, you retain the title to you home, so you’re not making payments to a creditor – in fact, they’re making payments to you.
But it’s not all bad news:
- You can deduct qualified MIP costs if you use your reverse mortgage to purchase a new property (this rule doesn’t apply to reverse mortgages used to access equity from the home you currently live in).
- You can also deduct the interest associated with the reverse mortgage if and when you pay off the loan.
- Also, your loan payout is not taxable! Because these are loan proceeds that are assumed to be repaid at some point in time (with interest), they are not considered income by the IRS (take a look here).
- At the end of the day, if you’re looking for increased tax deductions, then a reverse mortgage isn’t really the best way to go.
However, remember that with a HECM loan of any type, you won’t be making monthly mortgage payments, so the amount you would have saved with tax deductions is FAR outweighed by what you save not making loan payments.
Also, keep in mind that because you’re required to maintain your property (taxes, insurance, upkeep, etc.) with a reverse mortgage, there may be tax deductions related to those costs that you can claim.
Disclaimer: I am not a CPA or Tax Attorney, so please check with your preferred tax professional to make sure any these potential deductions apply to you.
Who Can Help Me with Reverse Mortgage Questions?
Like I always say, do your research (and then do some more…) and for that, there’s always Google.
But when you’re serious and ready to start the process of acquiring the equity in your property via a reverse mortgage, there’s really no better way to get questions answered than by asking qualified loan originators (such as me and my colleagues).
Some of the info online can be confusing and not all of it matches up exactly.
I suggest you take what you have learned via your own research efforts, compare it all, then contact me with questions about the contradictory issues and the stuff you just don’t understand.
I’m here 24 hours/day via email at [email protected] or you can simply click on the button below to contact me via this website.
Or, during normal business hours, feel free to contact me locally in the Dallas, Texas area by calling (972) 803-3073 or if you live a little further away than that, use my toll-free number (800) 304-4143.
Make sure to check back for more real-world FAQs and bookmark this and any other posts on my site for reference so you can make sure to have all the information you need right at your fingertips when it comes time to pull-the-trigger on your reverse mortgage investment.