DEAR BOB: About six years ago, I took out a senior citizen FHA reverse mortgage. The monthly income payments have helped me stay in my home rather than having to move to a rental apartment or one of those dreaded “assisted living” places. However, when I took out my reverse mortgage, my house was worth around $150,000. Today, it has skyrocketed in market value to about $400,000. Is there any way I can get a new larger reverse mortgage without having to again incur all those up-front loan fees? – Agnes W.
DEAR AGNES: Yes. FHA recently reduced its up-front, streamlined mortgage insurance premium (MIP) for senior citizen reverse mortgage refinancing. Fannie Mae, the major buyer of FHA reverse mortgages in the secondary mortgage market, clarified that refinanced reverse mortgages will have a 2 percent MIP charge for only the difference between the original and the new maximum FHA claim amount.
Purchase Bob Bruss reports online.
But Fannie Mae will not buy a streamlined reverse mortgage refinance if there is any default, such as not paying the property taxes or insurance, or if repairs are not being made.
These new FHA reverse mortgage refinance rules should save you hundreds of dollars on your up-front costs. For full details, please consult your reverse mortgage lender.
BUYER REFINANCE CAUSES BIG TAX HEADACHE FOR SELLER
DEAR BOB: About five years ago, I sold my rental property to the tenant and carried back the mortgage at 7 percent interest. That mortgage has been a great investment for me. Now my buyer is refinancing at a lower interest rate around 5.5 percent. I offered to reduce my interest rate, but he is taking cash out so I can’t match his lender’s offer. However, my tax man says I will now have to pay all the installment sale deferred capital gain tax when I receive my mortgage payoff. Is that true? – Lindy R.
DEAR LINDY: Yes. When an installment sale mortgage is paid in full, any deferred capital gain tax becomes due.
Unless you prohibited early prepayment on your installment sale mortgage, which is virtually impossible to do, you must accept the cash and pay your deferred capital gain tax. For full details, please consult your tax adviser.
YOU CAN’T EXCHANGE INTO LAND YOU ALREADY OWN
DEAR BOB: We own a rental condominium. Can we make a tax-deferred exchange by building a rental property on vacant land we have owned since 1978? The construction cost will be in excess of the $200,000 we expect to receive for the condominium. Are we permitted to use the vacant land we own to build a rental on it in a tax-deferred exchange? – Delma P.
DEAR DELMA: No. To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must sell your investment rental or business property and then acquire a replacement property of equal or greater cost and equity.
You cannot make a “trade” into a property you already own. More details are in my new special report, “How the New Tax-Deferred Realty Exchange Rules Can Make You Very Wealthy,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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