Below are some frequently asked reverse mortgage questions from visitors. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:

Reverse Mortgage Basics

Reverse Mortgage Rates and Fees

Reverse Mortgages and Taxes

Reverse Mortgage Counseling

If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.

1. My mom is considering a reverse mortgage. Her only income is social security. What happens if the reverse mortgage leaves her with little equity in the home and she has to go into a nursing home facility? Who will pay for the nursing home expenses?
2. Why can’t I get an answer from my tax consultant or reply from my reverse mortgage Lender in just asking if the interest I have been paying throughout the tenure of this mortgage would be tax deductible upon selling. This would surely benefit me with such a hefty Capital Gains Tax looming upon a future sale. Thank you for your reply.
3. 2 questions: 1. Can the funds be used to purchase a new principal residence? 2. Are mobile/manufactured homes, with lot, acceptable as “single-family units”?
4. My father in law is considering getting a reverse loan. His daughter lives with him. He is 76 years old. If he should pass away, what options will she have to still have the home in the family?
5. Since interest on a reverse mortgage isn’t paid (and isn’t deductible) until the home is sold or the borrower dies or moves out, the total accrued interest can be substantial in the year paid. What happens if total interest paid is more than the borrower’s income for the year? Can the deduction be carried over to subsequent years?
6. My husband and I are considering a reverse mortgage to bolster our monthly income. However, my husband is in poor health and may need nursing home care at some point. If he dies or moves to an assisted facility, will the loan have to be repaid?
7. If the house is foreclosed will my relatives get anything after the sale of the house?

Reverse Mortgage Questions From Visitors

1. My mom is considering a reverse mortgage. Her only income is social security. What happens if the reverse mortgage leaves her with little equity in the home and she has to go into a nursing home facility? Who will pay for the nursing home expenses?

   If your mother needs to move into a nursing home, the reverse mortage loan will be become due. Unless there is an alternate source to pay off the loan, she’ll probably have to sell her home. If paying off the loan uses up most of her money, she will be able to apply for Medicaid assistance. Once on Medicaid and in a nursing home, most of her social security income will go directly toward the nursing home expenses. Medicaid will pay the difference between the amount she can pay and the cost of the care.

2. Why can’t I get an answer from my tax consultant or reply from my reverse mortgage Lender in just asking if the interest I have been paying throughout the tenure of this mortgage would be tax deductible upon selling. This would surely benefit me with such a hefty Capital Gains Tax looming upon a future sale. Thank you for your reply.

   Generally, interest on a reverse mortgage is paid when the loan terminates (sale,death of owner). So you likely haven’t “paid” any interest on your reverse mortgage, but have “accrued” an interest liability that will be paid when you sell. Interest is generally deductible for the year in which it is paid, so the deduction should be available to help offset your capital gain. You may be interested in this article which speaks to a strategy of using a reverse mortgage to avoid capital gains tax.

3. 2 questions: 1. Can the funds be used to purchase a new principal residence? 2. Are mobile/manufactured homes, with lot, acceptable as “single-family units”?

   1. Generally,no as you must own your principal residence at the time the loan is taken. The Fannie Mae HomeKeeper reverse mortgage can be used in this manner, however. For more information on how this might, see this example.

   2. For Home Equity Conversion Mortgage loans (HECM), manufactured homes are eligible if they meet FHA standards, including: * borrower owns land beneath the home, and * home is permanently affixed to a foundation * home was built after June 15, 1976 - mobile homes are not eligible Other reverse mortgage programs may have different standards.

4. My father in law is considering getting a reverse loan. His daughter lives with him. He is 76 years old. If he should pass away, what options will she have to still have the home in the family?

   When the homeowner(s) dies, the reverse mortgage will need to be repaid. Often this is done by selling the home, but other resources can be used if keeping the home in the family is the goal. Obviously, the practicality of this option depends on many factors: how large the loan balance is, availability of other resources, etc. Another option is for the daughter to refinance - i.e. take out a new loan to buy the house and retire the reverse mortgage balance. In effect, she would buy the house from herself (father’s estate).

5. Since interest on a reverse mortgage isn’t paid (and isn’t deductible) until the home is sold or the borrower dies or moves out, the total accrued interest can be substantial in the year paid. What happens if total interest paid is more than the borrower’s income for the year? Can the deduction be carried over to subsequent years?

   Unfortunately, the interest deduction cannot be carried over. Any deductible interest amount that exceeds the borrower’s income will be lost as a tax deduction.

6. My husband and I are considering a reverse mortgage to bolster our monthly income. However, my husband is in poor health and may need nursing home care at some point. If he dies or moves to an assisted facility, will the loan have to be repaid?

   The answer is no - assuming both you and your husband are titled owners of the home and are over 62. The reverse mortgage needs to be repaid only after the last borrower (you or your husband) passes away, moves or stops living in the home as their primary residence. So, if you elected to remain in the home, the reverse mortgage would not need to be repaid.

7. If the house is foreclosed will my relatives get anything after the sale of the house?

   Generally a foreclosure would occur when the value of the home is less than the outstanding obligations. So, the answer to your question is most likely “No”. If the value of the home is greater than outstanding obligations, the sensible thing to do would be to sell before forclosure commences. The equity remaining after payment of the obligations would be your’s (or your estate’s) to do as you please with.

   Reverse mortgages are “non-recourse” loans meaning the total amount owed on the loan can never exceed the home’s market value. Moreover, reverse mortgages require no monthly loan payments so foreclosre for reason of non-payment is not an issue. Indded, reverse mortgages are sometimes used as tools to pay off a burdensome traditional mortgage thereby avoiding a foreclosure.

   Reasons for foreclosure under a reverse mortgage can include failure to: pay property taxes, keep the home in good repair, and failure to maintain adequate insurance. Lenders typically will work very hard to avoid a foreclosure scenario.

   In the unlikely event you entered into a reverse mortgage, experienced foreclosure, and the home was ultimately sold off for more than the acumulated obligations, the flow of the excess funds would be governed by state and local laws.