A retired couple came seeking ways to reduce their property tax burden. After retirement, their fixed income decreased, and they were contemplating selling their home as they faced rising property tax bills each year. Recently, many retirees in Billings have been grappling with similar concerns. Montana has a population of 21.1% aged 65 and older as of 2024, significantly higher than the national average of 18%, making it one of the most aging states in the U.S.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity in their home. Unlike a traditional mortgage that requires monthly payments, funds can be received as a lump sum, monthly payments, or a line of credit, and the loan is repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence. In Billings, Zillow estimates the average home value will be $398,212 in 2026, reflecting a 1.9% increase over the past year. The longer someone has lived in their home, the more equity they can access.

However, the property tax concerns that this couple originally had do not disappear simply because they take out a reverse mortgage. According to Ownwell data, the median effective property tax rate in Billings is 0.97%, while Yellowstone County's overall rate is around 0.96%, similar to the national median of 1.02%. Montana operates a Homestead Reduced Rate Program, which applies a tiered assessment rate for primary residences, meaning actual tax burdens can vary by property. Even with a reverse mortgage, they must pass a financial assessment to ensure they can continue to pay property taxes and insurance, so it is important to clarify that this product does not eliminate property tax burdens entirely.

From a cost perspective, the origination fees and mortgage insurance premiums associated with the federally insured HECM can make initial costs higher than a traditional mortgage. However, it is a non-recourse loan structure, meaning that if the home value falls below the loan balance later, heirs are not required to pay the excess due to FHA insurance.

Recent market trends indicate that the factors determining loan limits are age, interest rates, and home values. Generally, the older you are and the lower the interest rates, the more you can borrow. HECM loans are only available up to the limits set by HUD, and if there is an existing mortgage, that balance must be paid off first with the reverse mortgage funds.

Alternatives to reverse mortgages, such as home equity lines of credit or downsizing, are also worth considering. Home equity lines of credit have lower initial costs but come with monthly repayment obligations, which can be burdensome on a fixed income, while downsizing can provide a lump sum but requires leaving a familiar neighborhood.

In addition to the previously mentioned Homestead Reduced Rate Program, I also informed the couple about the Elderly Homeowner Credit, which refunds property taxes for elderly homeowners with incomes below a certain level. However, income thresholds are adjusted annually, so they should verify directly with the Yellowstone County Finance Department or a tax professional.

I advised the couple that while a reverse mortgage could create monthly cash flow to ease living expenses, it could also reduce the equity left in the home over time, potentially decreasing the assets passed on to their children. Additionally, failing to continue paying property taxes or insurance could lead to default. Exploring local government senior reduction programs could also be a way to alleviate property tax burdens.

Ultimately, the couple decided to seek counseling through a HUD-approved agency before making a decision. Given that scams related to reverse mortgages targeting seniors do exist, it is advisable to have thorough consultations and discussions with family. This article does not constitute investment or legal advice, and consulting with a professional before any actual contracts is recommended.