In a case like this, you have the potential to gain ten times more in additional loan proceeds than the amount of money you would have to pay ($5,000 x 10 = $50,000), which is well above the “5 times” rule and which makes the new transaction a viable option to consider.Īnother lender offers you a new principal limit of $120,000, while estimating the closing costs somewhere around about $5,000. In one instance, a lender offers you a new principal limit of $150,000, a $50,000 increase in value over your current arrangement, with estimated closing costs of around $5,000. In searching for more amenable terms, you look into the possibility of refinancing into a new HECM and begin shopping around for options that could give you potentially better terms, which include access to additional funds. Let’s say that under the current terms of your existing HECM reverse mortgage, you have an initial principal limit of $100,000. Tapping into that additional equity may be beneficial for anyone who may require access to additional funds to meet more financial obligations in retirement. In addition to a change in interest rates or PLFs as possible motivating factors, you may find it beneficial to refinance your reverse mortgage if your home value has notably increased, such as due to market conditions, or even after renovations that may have added value to the property. This is because HECM reverse mortgages are only available to Americans that are at least 62 years of age. In terms of refinancing reverse mortgages, the motivation for doing so can come from a number of places that tend to be a bit more specialized. Refinancing conventional, forward mortgages is a very common practice that some borrowers utilize in order to try and create more favorable terms as they work to pay off their home loan. Refinancing can come with several possible benefits, including increasing the amount of money that you’re able to borrow from the loan, along with taking into account other factors that may have shifted into your favor since the original loan was first created, particularly in terms of interest rates and/or principal limit factors ( PLFs). The short answer to this is yes, it is possible to refinance a HECM reverse mortgage. The question is whether the compounded interest on the acquisition debt is deductible - I certainly hope that at least the simple interest is.For some existing reverse mortgage borrowers – particularly borrowers who have a Home Equity Conversion Mortgage ( HECM) sponsored by the Federal Housing Administration (FHA) – a number of factors may lead them to ask if it is both possible and/or beneficial to potentially refinance their existing loan into an offering with more advantageous terms. I think that we must find all her monthly interest rates (average weekly 1-year Treasury) over the life of the loan and calculate the interest attributable only to the acquisition debt, because she also did from time to time take money out. Is that entire amount deductible, or only the $200? It doesn't sound like a big difference for the first two months, but I think it might add up to something over 10 years or more. The interest for the second month is $200.40. In the second month, the balance is now $100,200. But it also gets added to the loan balance. My interest payment in the first month was $200 and that is all deductible. Does that include compounding? To keep things simple, let's say that the annual interest rate was 2.4 % and the acquisition debt was $100,000. There was acquisition debt and now, it seems, she can deduct all the interest she paid on that debt. My mother took out a reverse mortgage many years ago and paid it off last year when she sold her condominium. The IRS has to say: “Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you pay it, which is usually when you pay off the loan in full.” If you do pay the interest, though, it’s fair game for a tax deduction. However, it’s important to note that this doesn’t mean a borrower can claim the interest that accrues on the loan unless they pay it off. While one of the perks of getting a reverse mortgage is not having to make a monthly payment, making interest payments is something to consider for those who wish to control their balance. He says these deductions can all be listed on Schedule A of a 1040 form. “Sometimes the IRS doesn’t get everything reported correctly, and you must have all your ducks in a row.” “The key thing would be, make sure the borrower saves their final settlement statement (which lists the various fees) when they close, for when tax time comes,” says Diaz. In some states like Florida, the “intangible fee” can also be claimed in reverse mortgages.
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