To a lender, one of the first questions a borrower asks is related to tax. For senior citizens, it matters as their incomes may have dried up. What are the tax milestones that are key to making the decision to applying for reverse mortgage after the age of 62? Here is an insight from the lending point of view as market changes in the realty sector dictate the trends.
Can older people hold on to their savings?
Aging is inevitable, but so is taxation. What hurts is there are fewer sources of income and medical bills continue to rise. A lender can always help people to prepare their financial graph till the time they retire. They can simply keep the customers on alert. Inform them by the time they cross the milestone of 66 years, many benefits will come under federal and state taxes. It is important to target customers with a plan that can see them through the milestones with more happiness.
Tax issues to remember
Like any other loan application, RM has its advantages and disadvantages. In order to understand both, let us begin with the advantages first. Explain clearly how monthly advances can be spent on the right things. Prioritize the spend and let them know this is not an income which they earn. So, when the borrower applies for IT returns, the interest on RM will not be deducted till the loan is paid in part or whole. The medicare and social security benefits remain unaffected.
Choosing the right reverse mortgage plan
Once you have determined the milestone age, offer the right plan. The borrower will have three choices.
- The state or NGOs offer single purpose plan.
- The federal housing scheme covers a plan called HECM. It is supported by HUD. This is one of the safest schemes as it is promoted by the government.
- Several companies offer proprietary reverse mortgages. These are private entities that issue loans against the homes.
What about other payments when the loan has been availed?
There are none at all. But the agreement will spell out that when the closing is done, the borrower will have to pay the current real-estate taxes, insurance on the home, repairs and upgrades. They will not be borne by the lender. Unlike in other loans where credit scores are checked and interests are paid, this one is relatively free of such complications. This loan needs to be paid as per the agreement made between the lender and borrower. The payment can be given after a two-month process.
The scheme is not for everyone
RM prospects may be pretty low right now, yet the idea cannot be sold to everyone. Explaining tax implications may be hard to the borrower. But it has to be done. This loan is very different from the normal loan mortgage that anyone else can avail. The lender will have to give a profile view of the right time to apply. The borrower will need to know that the heirs cannot inherit the debts later. Unlike other loans where credit scores are checked and interests are paid, this one is relatively free of complications.
The realty sector at the moment is lying low. Time will tell how taxation rules will change. Until then, the lenders can offer current RM plans for those who have crossed the milestone of 62 years.