Can You Rent Your House If You Have a Reverse Mortgage?
Structurally, a reverse mortgage is a loan taken out in a lump sum or installments, using the value of your home to secure the principal. Typically, a homeowner will pledge his home as collateral to receive a stream of income lasting for a specific number of years or for life. The reverse mortgage company underwrites the loan based on the life expectancy of the homeowner. When the homeowner dies or vacates the property, the loan must be repaid -- either by transferring the title of the home to the reverse mortgage company or by paying off the loan in cash. Generally, you cannot rent out a home subject to a reverse mortgage.
Other People Are Reading
-
Qualifications
-
To qualify for a reverse mortgage, one of the homeowners must be at least 62 years of age and must live in the home. You cannot take out a reverse mortgage on a rental or investment property. You can only take out the reverse mortgage on your homestead.
Tax Treatment of Reverse Mortgages
-
The stream of income from a reverse mortgage is considered a loan, not ordinary income. For that reason, the payments are free of federal income tax.
-
Fee Structure
-
The reverse mortgage company typically charges an origination fee. On top of that, you or your heirs will pay interest on amounts loaned to you under a reverse mortgage. As you take the stream of payments, your loan balance will grow, as will the amount of interest you or your estate will ultimately be liable for. The interest rate could either be fixed or variable, depending on your contract. Most contracts contain a clause, called a non-recourse clause, that guarantees that your estate will not be liable for more than the home is worth at your death, however. The reverse mortgage company will not have recourse to collecting any assets other than the home.
Alternatives
-
If you need income, you may rent your property and use the stream of rental income to supplement your living expenses. You may also consider taking out a bank loan or a second mortgage against the property rather than a reverse mortgage.
-
