Reverse mortgages, you have seen the cheesy commercials where they get an old actor who hasn’t seen a payday on a decade or so, pitch the wonderful benefits to those who had not been lucky enough to plan for their retirement better.
A reverse mortgage is a loan. A homeowner who is 62 or older and has considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. Unlike a forward mortgage—the type used to buy a home—a reverse mortgage doesn’t require the homeowner to make any loan payments.
The funds withdrawn on a reverse mortgage will not be taxed. The payments received on a reverse mortgage are treated as nontaxable loan proceeds, not income.
Also, you can’t deduct the interest (assuming you qualify to itemize) you eventually pay because you’re not using the proceeds to buy, build or substantially improve the home securing the loan.
I am not a fan, but I know that there are those who have few options to pay their bills in their dotage.