Prepay the Reverse Mortgage? Can You Do That?
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.
There is no doubt they intend to make payments. Whether they will is a different story.
The reason for my skepticism is people want reverse mortgages for a very specific reason. They need the money because there isn't enough. That being the case why would that change for them to have enough later to make extra 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.
FHA sets the rules for reverse mortgage lending. FHA is clearly borrower favorable in that you can make payments at any time with out monetary repercussion.
You may be asking why someone would want to make payments. Well, people have reasons from hating debt of any sort to using the mortgage as a tax shelter. This latter reason is one of the biggies.
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.
The thing about getting this interest write-off is that there exists an order in which one can apply payments when prepaying a reverse mortgage. The vast majority of borrowers stick the closing costs into the mortgage. These costs must get paid prior to payments applying to interest.
So, the government has rules for this too.
One big expense when paying closing costs is the origination fee. That can easily be up to two percent of your appraised value when you first obtained your loan.
The origination fee is a big write-off. Make sure you run this stuff by your CPA. They are more abreast than I and things change.
There is no doubt they intend to make payments. Whether they will is a different story.
The reason for my skepticism is people want reverse mortgages for a very specific reason. They need the money because there isn't enough. That being the case why would that change for them to have enough later to make extra 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.
FHA sets the rules for reverse mortgage lending. FHA is clearly borrower favorable in that you can make payments at any time with out monetary repercussion.
You may be asking why someone would want to make payments. Well, people have reasons from hating debt of any sort to using the mortgage as a tax shelter. This latter reason is one of the biggies.
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.
The thing about getting this interest write-off is that there exists an order in which one can apply payments when prepaying a reverse mortgage. The vast majority of borrowers stick the closing costs into the mortgage. These costs must get paid prior to payments applying to interest.
So, the government has rules for this too.
One big expense when paying closing costs is the origination fee. That can easily be up to two percent of your appraised value when you first obtained your loan.
The origination fee is a big write-off. Make sure you run this stuff by your CPA. They are more abreast than I and things change.
posted by Credit Counseling at
6:49 AM
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