Tax and Insurance questions were one of the most interesting issues raised at the MBA Reverse Mortgage Conference in San Diego earlier this month.  As the reverse mortgage product evolved, they are also two questions that are likely to be closely attended to.

A report by the Government Accountability Office (GAO) cited the phrase “Never lose your home” as a problem in reverse mortgage advertising because if a borrower does not pay the tax and insurance obligations on the home, the borrower can be foreclosed upon. Right now 2% of all reverse mortgages go into default due to so-called T&I issues. However when these issues were discussed at the MBA conference, it appeared that there were things that borrowers could easily do to avoid these potential problems. Many just did not know they could do so.

One is to set up a tax and insurance set-aside account.  Doing so would take some of the reverse mortgage proceeds and set them aside to pay taxes and insurance on the home. This would assure that the borrower always has the money to pay for taxes and insurance and that they are paid automatically.  It is one easy way for a borrower to handle the tax and insurance obligation. However, many borrowers currently do not take advantage of this option.

Another is that there are many tax exemptions for seniors.  However, many seniors do not realize they are eligible. Seniors should inquire with their states and municipalities about property tax exemptions that they may be eligible for.  While there is often a lot of red-tape surrounding these exemptions, they can save seniors significant amounts of money.

Tax and insurance obligations do not need to be reasons for a reverse mortgage to default. If borrowers are responsible and plan in advance, they can alleviate the obligations before they ever become a problem.