Reverse Mortgage Prepayment Questions Answered
Believe it or not I get many people call me wanting to get a reverse mortgage with the intent of actually making payments on the mortgage.
I know everyone has good intentions and you've heard about the best laid plans.
Let's face it most people are getting a reverse mortgage because a need exists for money. If the need for money exists for those on fixed incomes (generally) chances are there won't be excess down the line to make mortgage payments.
Regardless, a goodly portion of my potential customers ask if the reverse mortgage company will ding them if they make payments on the loan.
The fact is you can make payments anytime you like on reverse mortgages and not be in jeapardy of some form of pre-payment penalty.
One strong reason people wish to make payments is to reduce their tax burden. Remember, you get to write off interest on a reverse mortgage just as you would with a typical forward mortgage.
The thing to understand about the interest write-off and the reverse mortgage is one can only get that write-off the same year in which the interest is paid. You see, when you aren't making payments on the mortgage you don't get the write-off.
In order to get the write-off the borrower must make payments. It's at least a good reason to ask about repercussions.
Keep in mind the tax laws. Most people roll closing costs into the loan when they initially get a reverse mortgage. Last time I checked the tax laws said closing costs needed to get paid prior to being able to make payments on the mortgage for the sake of writing off interest.
Just keep in mind the order in which early payments are applied.
Of all the costs originally financed into your reverse mortgage one of the largest was the lender's loan origination fee. This fee could have been two percent of the home's value or even more.
At least you have the lender's fee as a write-off while paying off closing cost prior to getting the interest write-off. Please check with your CPA on all tax related matters.
I know everyone has good intentions and you've heard about the best laid plans.
Let's face it most people are getting a reverse mortgage because a need exists for money. If the need for money exists for those on fixed incomes (generally) chances are there won't be excess down the line to make mortgage payments.
Regardless, a goodly portion of my potential customers ask if the reverse mortgage company will ding them if they make payments on the loan.
The fact is you can make payments anytime you like on reverse mortgages and not be in jeapardy of some form of pre-payment penalty.
One strong reason people wish to make payments is to reduce their tax burden. Remember, you get to write off interest on a reverse mortgage just as you would with a typical forward mortgage.
The thing to understand about the interest write-off and the reverse mortgage is one can only get that write-off the same year in which the interest is paid. You see, when you aren't making payments on the mortgage you don't get the write-off.
In order to get the write-off the borrower must make payments. It's at least a good reason to ask about repercussions.
Keep in mind the tax laws. Most people roll closing costs into the loan when they initially get a reverse mortgage. Last time I checked the tax laws said closing costs needed to get paid prior to being able to make payments on the mortgage for the sake of writing off interest.
Just keep in mind the order in which early payments are applied.
Of all the costs originally financed into your reverse mortgage one of the largest was the lender's loan origination fee. This fee could have been two percent of the home's value or even more.
At least you have the lender's fee as a write-off while paying off closing cost prior to getting the interest write-off. Please check with your CPA on all tax related matters.
posted by Credit Counseling at
7:18 AM
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