A long-time client recently shared that every year, seeing the property tax bill increases their burden, but they don't want to sell their home. In the past, few people had such concerns, but recently, it has become more common.

One option that arises in this situation is a reverse mortgage. This product allows homeowners aged 62 and older to borrow against the equity in their home, receiving funds in a lump sum, monthly payments, or a line of credit instead of making monthly repayments. The loan principal and interest are repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence. The Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration, is the most representative type and the only reverse mortgage type backed by the federal government.

San Jose is a region where this calculation works particularly well. According to Zillow, as of June 30, 2026, the average home value in San Jose is $1,413,804. Although it has decreased by 1.8 percent compared to the previous year, it still maintains a value in the high seven figures. Many people likely did not expect home prices to rise this much, and now the question of how to utilize this significant equity has become a new concern.

However, there are important considerations when trying to resolve property tax burdens with a reverse mortgage. Even if you take out a loan, the property taxes and insurance premiums must still be paid by the homeowner. The average effective property tax rate in California is 0.71 percent, which is lower than the national average of 0.91 percent, but in high-value San Jose, the absolute amount is not insignificant. It is crucial to understand that failing to pay these can lead to default.

Costs are another item to check. When you combine the origination fee, mortgage insurance premium, initial costs of about 2 percent, and an annual rate of 0.5 percent with closing costs, the initial expenses are higher than a traditional mortgage. Over time, the equity left in the home decreases, which may reduce the assets passed on to children. Conversely, due to the non-recourse structure, if the home value falls below the loan balance, heirs are not required to pay the excess.

It's also good to check the eligibility requirements. You must be at least 62 years old, the home must be your primary residence, and if there is an existing mortgage balance, it must be paid off with the reverse mortgage funds. You also need to pass a financial assessment to ensure you can continue to pay property taxes and insurance premiums. In the past, some cases proceeded without this assessment, but now this process has become standard, which has strengthened protections for homeowners.

It's worth exploring other methods to reduce property tax burdens. In the past, many believed there were no sharp alternatives other than selling the home and moving to a lower-tax area. Now, utilizing equity while staying in place, like with a reverse mortgage, has become a viable option. However, it's important to clarify that this method does not lower the property tax itself. It means that some of the funds received from the loan can be used to pay property taxes, but it does not reduce the tax rate or amount. In areas like Silicon Valley, where home prices have consistently risen, the original low property tax basis may remain, so checking the difference between the original purchase price and current market value can be helpful.

As of 2024, the percentage of the population aged 65 and older in California is projected to be 16.5 percent, and this is expected to continue to rise. The increasing interest in such programs is not unrelated to this trend. HECM requires mandatory counseling from a HUD-approved counseling agency before applying, so it's advisable to thoroughly check your situation there and discuss it with family before making a decision. This article is not investment or legal advice, and consulting a professional before any actual contracts is recommended.