There are several questions asked by senior citizens about reverse mortgages, but the most common question is, are reverse mortgages tax free?
In this economy, people are struggling to find ways to get their hands on extra cash. There are different ways to accomplish this feat. One way is to take out a reverse mortgage. However, not just anyone can get a reverse mortgage as this loan is only available to seniors.
What is a Reverse Mortgage?
It’s important to know exactly what a reverse mortgage is. First of all, a reverse mortgage is only available to senior citizens. It is defined as a loan used to release the home equity of a property as either multiple payments or one lump sum. The obligation to repay the loan is delayed until either the home is sold, or the owner dies. If a property increases in value after one reverse mortgage is taken on it, sometimes a second one can be acquired. However, that is not allowed in certain countries. But are reverse mortgages tax free? Before answering that, let’s look at the pros and cons of reverse mortgages.
Pros
- The bank cannot make the owner sell the property to pay back the loan.
- The owner is guaranteed to be able to live on the property for as long as they live, even if the interest exceeds the property’s value.
- Money can be drawn from the value of the property, with no monthly fees.
Cons
- Reverse mortgages can cost thousands of dollars more than a normal mortgage.
Are Reverse Mortgages Tax Free?
Now that we all have a better understanding of what a reverse mortgage is, we can answer that question. A reverse mortgage is classified as a loan and not as income. Only income can be taxed; therefore, reverse mortgages are completely tax free.
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