Key Takeaways
- Many states allow seniors to defer paying property taxes until they pass away.
- This can free up thousands of dollars in annual cash flow.
- A tax deferral is essentially a zero-cost, government-subsidized reverse mortgage.
\n\nOne of the most common reasons seniors seek a reverse mortgage is because they can no longer afford the rapidly rising property taxes in their neighborhood. If your home is paid off, but the county is charging you $8,000 a year in property taxes, you can quickly find yourself being taxed out of your own home.
Before you take out a reverse mortgage to pay those taxes, you must check if your state offers a Property Tax Deferral Program.
What is a Property Tax Deferral?
Several states (including Colorado, Oregon, Massachusetts, and California) offer specific tax relief programs for senior citizens.
Instead of forcing you to pay your property taxes every year, the state government pays the county on your behalf. In exchange, the state places a lien on your property.
You do not have to pay the state back while you are alive. The deferred taxes (plus a very low, state-mandated interest rate, often around 4% to 6%) simply accrue over time. When you eventually pass away or sell the home, the state is paid back from the proceeds of the sale.
Why This Beats a Reverse Mortgage
If you look closely at the mechanics, a property tax deferral is exactly the same concept as a reverse mortgage: you are using your home's equity to pay for a living expense, and the debt is deferred until you die.
However, the state deferral program is infinitely better for one reason: No Closing Costs.
If you get a reverse mortgage just to pay your taxes, you will pay thousands of dollars in origination fees, title insurance, and FHA mortgage insurance premiums. The state deferral program typically costs nothing to set up. It is essentially a subsidized, zero-fee reverse mortgage offered by the government specifically for the purpose of keeping seniors in their homes.
How to Qualify
Qualifications vary wildly by state, but generally require: - You must be over a certain age (usually 62 or 65). - You must meet specific income limits (the program is designed for lower-to-middle income seniors). - You must have sufficient equity in the home (the state won't defer taxes if the home is already entirely underwater with another mortgage).
Always contact your county tax assessor's office and explicitly ask about "Senior Property Tax Deferral Programs" before committing to a private reverse mortgage.\n