In Cresskill, I often meet retirees who sigh as they receive their property tax bills. They have already paid off their homes, yet they face thousands of dollars in property taxes each year. Relying solely on fixed income can be a heavy burden. In such situations, reverse mortgages come into play.

Let's start by simply explaining what a reverse mortgage is. It is a product that allows homeowners aged 62 and older to borrow money against the equity in their homes. Unlike traditional loans, which require monthly payments, this works in the opposite way. The lending institution provides money to the homeowner in a lump sum, monthly payments, or a line of credit. This money is repaid when the home is sold, the owner passes away, or the owner no longer lives in the home. The Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA), is the most commonly used method. The source is hud.gov.

Looking at home prices in Cresskill, the average home value according to Zillow is $790,377, which has increased by 2.1% over the past year. The recent median sale price is reported to be around $999,000. For those with significant equity in their homes, the amount of money that can be secured through a reverse mortgage also increases.

In simple terms, this means that instead of paying out money each month, homeowners can actually receive money. In situations where cash is lacking to pay property taxes, this cash flow can provide relief. Additionally, because it is a non-recourse structure, heirs are not required to pay the difference if home values decline later.

However, there is something important to understand. Receiving this product does not eliminate the obligation to pay property taxes. In fact, the ability to continue paying property taxes and insurance is included in the financial assessment criteria. The average effective property tax rate in Bergen County is about 1.69% (PropertyTaxRates.org). Failing to continue these payments can lead to default, meaning foreclosure. The initial costs are also significant, including origination fees and mortgage insurance (initially around 2%, then 0.5% annually), along with closing costs. Over time, the equity in the home decreases, and the assets left for children become smaller.

As of 2024, the population aged 65 and older in New Jersey is about 18% of the total population (USAFacts). This has increased by 33% since 2010. This trend is likely to be more pronounced in areas with property tax burdens.

Let's summarize the eligibility requirements. You must be at least 62 years old. The home must be your primary residence. If there is an existing mortgage, it must be paid off with the loan proceeds. You must also pass a financial assessment to confirm your ability to continue paying property taxes and insurance.

The amount you can receive varies based on age, interest rates, and home values. In simple terms, the older you are and the lower the interest rates, the more money you can receive. HUD counseling explains this calculation, costs, and alternatives. It's advisable to be cautious of proposals that pressure you to sign quickly.

There are other ways to cover property taxes. A Home Equity Line of Credit (HELOC) requires monthly principal and interest payments and has stricter income assessments. While it differs from a reverse mortgage in that it has repayment obligations, it also means that initial costs and the rate at which equity decreases are greater.

Another useful point to know is that HECM also has a line of credit option, where unused credit limits gradually increase over time. Additionally, if a non-borrowing spouse lives in the home, there are protections in place that allow them to continue living there even if the borrowing spouse passes away, provided certain conditions are met. These details can be confirmed one by one during HUD counseling.

Before making a decision, there is a mandatory process to go through. HECM requires a counseling session with a HUD-approved counseling agency before applying. Since there are actual scams related to reverse mortgages targeting the elderly, it's best to have thorough discussions and consult with family before making a decision.