A Chicago homeowner asked if there was a way to ease the burden of receiving a property tax bill. When comparing the same retirement assets, the tax burden differs significantly between Chicago and the suburbs. Let's follow this family's case to see how a reverse mortgage can help.

When comparing Chicago to the suburbs of Cook County, the average home value in Chicago is $325,887 according to Zillow, which is a 3.5 percent increase from a year ago. According to Hausio, the median price can reach up to $420,000. With the same budget, downtown Chicago has a higher proportion of condos, adding to the management fee burden, while the suburbs have a higher proportion of single-family homes, leading to larger tax variations based on land area.

The reverse mortgage this family is considering is a product that allows homeowners aged 62 and older to borrow against the equity of their home. The most common product, HECM, is insured by the Federal Housing Administration and offers options for a lump sum, monthly payments, or a line of credit. The principal and interest are settled when the home is sold, the owner passes away, or no longer lives in the home, which is the opposite structure of a traditional loan that requires monthly payments.

When comparing property tax burdens, the median effective property tax rate in Cook County is reported to be between 1.91 percent and 2.14 percent, nearly double the national median of 1.02 percent. However, downtown Chicago has a relatively low rate of 1.66 percent, while some suburbs like Ford Heights can reach as high as 8.93 percent. Even if cash flow increases with a reverse mortgage, the homeowner must still pay this property tax directly and must pass a financial capability assessment to ensure they can manage it.

The ability to secure cash flow without monthly repayment obligations, and the fact that even if the home value falls below the loan balance, HECM is a non-recourse loan, meaning heirs are not required to pay the difference, are attractive aspects for this family. On the other hand, the origination fees and initial mortgage insurance premiums are higher than those of a traditional mortgage, and over time, the equity left in the home decreases, reducing the assets that can be passed on to children. It is also important to consider that failing to continue paying property taxes and insurance premiums can lead to default. If it's a condo, management fees and additional charges must also be factored in, and for single-family homes, maintenance costs should be included to see the actual manageable scale.

If this family is contemplating whether to stay in Chicago, move to a suburb with lower tax rates, or remain in their current home with a reverse mortgage, they should calculate the costs of each of the three options. Staying in Chicago means a relatively low property tax rate but consistent condo management fees, while moving to the suburbs incurs initial purchase and moving costs but allows for a single-family home with a large yard. Staying in their current home with a reverse mortgage saves on moving costs but requires accepting initial loan costs and a decrease in equity. If they choose a reverse mortgage, they can receive comparative counseling on these three options during the mandatory consultation with a HUD-approved counseling agency before applying. This consultation is necessary for the actual application to proceed, and if the goal is to reduce tax burdens, it's advisable to also check Illinois' property tax exemption program for seniors during the counseling process.

As of 2024, the population aged 65 and older in Illinois is estimated to be 17.9 percent of the total. Families considering their residence after retirement while moving between Chicago and the suburbs should weigh the tax burdens and equity utilization options together. There is no single correct answer, and the favorable choice will vary based on this family's income structure and remaining loan balance. A reverse mortgage requires going through the mandatory counseling with a HUD-approved agency before applying, and since there are actual cases of fraud targeting the elderly, it's important not to rush the decision and to discuss it thoroughly with family. This article is not investment or legal advice, and consulting with a professional before any actual contracts is recommended.