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Tuesday, January 13, 2009
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 have reservations about their intentions to make monthly or periodic payments.
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.
What is different about the reverse mortgage in comparison to the forward mortgage is you don't make periodic interest payments, so most reverse mortgage customers don't get that particular write-off until the very end of the mortgage.
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.
Just keep in mind the order in which early payments are applied.
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.
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 have reservations about their intentions to make monthly or periodic payments.
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.
What is different about the reverse mortgage in comparison to the forward mortgage is you don't make periodic interest payments, so most reverse mortgage customers don't get that particular write-off until the very end of the mortgage.
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.
Just keep in mind the order in which early payments are applied.
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.
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
6:22 AM
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