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Interest on a reverse mortgage is not tax-deductible
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Question:What is a reverse mortgage and is the interest on a reverse mortgage tax-deductible?
A reverse mortgage is a type of loan in which tax-free payments are borrowed from and up to a certain percentage of the full equity in a home; also called reverse annuity mortgage or home equity conversion mortgage (HECM). Reverse mortgages are usually used by for a retired or elderly persons. Actually all lendersí programs that I have seen had a requirement like that you had to be at least 62 years old. While the lender will advertise that the title of your home remains in your name and the home can be left to your heirs, this is only partially true. Obviously the lender will build up their equity in your home as you lose yours. The reverse mortgage comes to an end when all possible equity is used up. Depending on the type of credit line that you chose, a certain percentage of the homeís value can be reverse mortgaged. Because the target audience is usually no longer full time employed anyway, lenders will not have any income or credit score requirements to qualify for a reverse mortgage.
Both the upfront expense of a reverse mortgage (loan origination fee) and the interest accrued over the life of the reverse mortgage are added to your reverse mortgage balance. So you donít actually pay these items. The IRS states that these expenses since they are not actually paid cannot be deducted until the reverse mortgage matures. This is the case when you sell your home or used up all equity.