Accrued Interest - Interest earned by Bond Sellers

helping_user

Bond sellers earn interest for holding the bond for a period of time between bond payments. That interest amount is called an "Accrued Interest" which is calculated as the fraction of coupon payment.

For Example:
Let Mr. Brown is selling a corporate bond with a face value of $1,500 on May 01, 2006 and a 6.5% coupon paid semi-annually. The next coupon payment is on June, 2006.

Then,
The Semi-annual Coupon Payment Rate = 6.5% / 2 = 3.25%

So,
Each Semi-annual Coupon Payment = $1,500 X 0.0325
Each Semi-annual Coupon Payment = $ 48.75

Number of days remaining in coupon payment = 120 Days

Therefore,
Accrued Interest = Coupon Payment (No. of days remaining / Total days in period)
Accrued Interest = $ 48.75 X (120 / 180)
Accrued Interest = $ 32.50

Guest

is the interest earned on a reverse mortgage taxable?

Guest

Until the loan in a reverse mortgage program is paid in part or in full, the interests are not deductible on income tax returns.

Guest

Hi,

The upfront expense of a reverse mortgage and the interest accrued over reverse mortgage term are added to the mortgage balance. You need not pay these items until the loan is paid off by selling the home.

Since you are not paying up the interest during the loan period, so the interest can't be deducted until the reverse mortgage matures.

Samantha

Hi,

Welcome to MortgageFit Forums.

Actually the money received from a reverse mortgage is considered as a non-taxable loan. The interest can be deducted on a reverse mortgage when the loan is actually paid off.

Also, since reverse mortgages are home equity loans so, interest that can be deducted for the loan amount up to $100,000.

Thus, if the balance on the loan is more than $100,000 at the time of paying off the mortgage then, all the interest will not be deductible.

God bless you.

For Mortgagefit,
Samantha

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