Reverse Mortgage Loan Blog

Q: I have a reverse mortgage. I am paying monthly interest, which is taken out of the loan, not out of my pocket. Can this be deducted . . . ?

-R.W., Westerly

A: No, said Robin Christian, senior tax analyst from the Tax & Accounting business of Thomson Reuters.

A reverse mortgage is typically geared to people 62 and older. It essentially lets you obtain cash by tapping the equity in your house.

It’s the reverse of a traditional mortgage, where you pay the lender.

With a reverse mortgage, the lender pays you.

In general, you borrow against your house’s equity, and receive a payment each month as a result. (Other payment arrangements may also be available.)

The interest on the loan accrues, adding to the loan balance, Christian said.

Because you don’t actually make interest payments, you don’t get to deduct them, she said.

The loan typically doesn’t come due until you die or move away and the house is sold.

Keep in mind, however, that taking out a reverse mortgage is a big step – and can be far more complicated that the TV promotions suggest.

Significant fees and other costs may be involved. In addition, some promoters bundle a reverse mortgage with a variable annuity or other such product – which may not be appropriate for you, but generates high fees for themselves.

Before you sign up for a reverse mortgage, talk to a financial adviser, who may be able to recommend other options that may best suit your circumstances.

Under legislation approved by the General Assembly and signed into law by Governor Carcieri in June, Rhode Island requires that you complete a special reverse-mortgage counseling program before entering into a reverse mortgage arrangement.

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