The interest is not deductible - unless you paid off the loan in full.
Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt.
However, for reverse mortgages, you can deduct amounts you paid for qualified mortgage insurance. The insurance must be in connection with home acquisition debt- the deduction is not available for the portion relating to other types of indebtedness, such as home equity indebtedness. Also, the insurance contract must have issued after 2006.
For more information, please refer to IRS publication 936, page 8.
A reverse mortgage is not a Home Equity Loan-
- Unlike a first mortgage, where you make monthly payments to the lender, with a reverse mortgage the lender pays you.
- Eventually, a reverse mortgage lender sells the home to recover monies paid out to the homeowner, with any remaining equity going to you or your heirs.
- A home equity loan involves a single lump-sum payment that is repaid in regular installments to cover the principal and interest (which is usually at a fixed rate).
- Like credit cards, HELOCs let you draw on your line of credit when you need it and only pay interest on what you use.
- All three debt instruments have advantages and disadvantages that homeowners need to take into consideration to determine which one is right for them.
