Ever wonder how reverse mortgages affect property taxes? Read on for details and information on reverse mortgages and property taxes.
Reverse mortgages are designed to pay senior homeowners a lump sum payment, a monthly payment, or some combination of the two. There are some tax issues that homeowners and homebuyers must keep in mind when it comes to reverse mortgages.
What Do I Need To Know?
• Just because you no longer have a mortgage payment doesn’t mean you are relieved of the need to pay your tax and utility payments. In fact, your reverse mortgage makes it even more important to stay up to date on these payments.
• Property taxes are the only lien on a property that trump the lien position of the primary lender. This means that if you fall behind on your taxes, your mortgage company has the right to stop making payments to you until your property taxes have been paid.
• Reverse mortgage payments are viewed as ‘advances’ by the Internal Revenue Service (IRS) so, unlike regular income, the proceeds from a reverse mortgage are not taxable.
• You will not be eligible for any of the tax benefits offered by a forward mortgage.
• Reverse mortgage lenders usually do not offer an escrow service so the homeowner or homebuyer is solely responsible for paying both taxes and homeowner’s insurance.
Educate Yourself
A reverse mortgage offers many benefits to senior homeowners and homebuyers. Once you familiarize yourself with your options there is nothing to fear. Remember that since you retain title to your home, you are responsible for staying current with property taxes, insurance, utilities, maintenance, and other housing expenses. If you don’t, your lender could demand repayment of your reverse mortgage. Interest on your reverse mortgages is not deductible on your income tax return until your loan is paid off in part or whole.
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