What are the Reverse Mortgage payout options, and are they taxable?
A question I'm often asked about a Reverse Mortgage is: how do I get the money? And, will I be taxed on the money from a Reverse Mortgage?
There are 6 different payout options for a Reverse Mortgage, and they are all based off the equity in your home at the time of closing.
- Lump Sum: This is the most common form of payout I see. It is the full amount of the Reverse Mortgage, in a complete lump sum. No monthly check, and no Line of Credit.
- Line of Credit: This is the full amount of money from the Reverse Mortgage that can be used whenever you need money. It will sit in a Line of Credit account, and you will not be charged interest until you draw from the Line of Credit.
- Tenure: This is a check for an equal amount that is mailed to you each month.
- Modified Tenure: This is a combination of the Tenure and Line of Credit; you will receive a check for an equal amount each month, and also, you will have a Line of Credit to use whenever you need money.
- Term: This is a check for an equal amount that is mailed to you each month for a fixed amount of time that you have chosen.
- Modified Term: This is a combination of the Term and Line of Credit; you will receive a check for an equal amount each month for a fixed amount of time that you have chosen, and also, you will have a Line of Credit to use whenever you need money.
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As far as taxes are concerned, at this time, the IRS is not treating the money received from a Reverse Mortgage as taxable income. Also, money received from a Reverse Mortgage does not affect Social Security benefits, Medicare benefits, or pension payments.
Please note however that if you are on Medicaid, the Lump Sum or Line of Credit payout options may be your best options, as any money received from a Reverse Mortgage would need to be used immediately upon receipt. The reason is because Medicaid is based on financial eligibility, and keeping any money received from a Reverse Mortgage could affect your eligibility for Medicaid. I advise all my clients to talk to their attorney or CPA if they are on Medicaid and are interested in a Reverse Mortgage.
If you have any other questions about Reverse Mortgages, give me a call at 541-868-1050 or email me at firstname.lastname@example.org. I look forward to hearing from you and giving you an estimate on how much you may be eligible to receive with a Reverse Mortgage!