By Debbie Burkham
Nothing says Happy New Year like knowing your property taxes must be paid by the end of the month, right? If you are approaching the magical age of 65 and expecting your property tax bill to disappear, I regret to inform you that you may be in for a surprise. For senior homeowners on fixed incomes, the expected but often neglected expense of property taxes hurts.
We know it’s coming, and to be prepared for the annual expense, we need to start saving in January and be disciplined enough to set aside a set amount of funds each month. That’s a difficult adjustment if your typical method has been to not save then panic when January arrives. Panic often leads to some undesirable choices such as letting the taxes go delinquent or borrowing the money to pay. What is a senior homeowner to do?
Texas property tax code Section 31.031 allows certain persons to pay homestead taxes in four equal installments without incurring penalties and interest. These persons include individuals who are disabled or age 65 or older; disabled veterans or their unmarried surviving spouses who qualify for an exemption under Tax Code Section 11.22; or partially disabled veterans with homes donated by charitable organizations and their unmarried surviving spouses. While this may be a more palatable option than paying a lump sum, adding sizeable payments to an already stretched budget often leads to missed utility payments or temporarily sacrificing basic needs such as healthcare and food.
Many older adult homeowners with a desire to age in place are house rich and cash poor. Tapping into their equity would require selling the home or borrowing against it, which is why we see so many advertisements for reverse mortgages. But there is another kind of reverse mortgage that only about 10% of older adult homeowners are aware of; it’s called property tax deferral. Property tax deferral is a type of reverse mortgage, known as a single purpose loan. Single purpose reverse mortgage loans are offered by state governments, local governments, or nonprofit organizations only for the purpose specified by the lender, such as home repairs or property taxes.
Property tax deferral is about as close as a homeowner will come to that “disappearing” property tax. The Texas Tax Code, Section 33.06, allows taxpayers 65 years of age or older to defer their property taxes until their estates are settled after death. One caveat is that your home must be mortgage free. The reason that you cannot defer property taxes when you have a mortgage is because your lender has a vested interest in your property until you have satisfied the loan. The lender does not want the local taxing authority to assume a first lien position, which is what would happen if don’t pay your taxes. In other words, the tax man always gets paid first.
So, what is the big deal about property tax deferral if it’s just another loan? Allow me to explain. First, it’s easier to qualify for a property tax deferral loan because they are not subject to credit checks. Other types of loans, including reverse mortgages, are subject to credit review. If your credit is not good, you may not be approved, or your interest rate may be high. Another important benefit of a property tax deferral loan is that they are less costly over time since interest accrues on the outstanding balance lower and slower compared to a reverse mortgage where FHA mortgage insurance accrues on the balance in addition to interest. This means your heirs have less to pay off after you die and stand a better chance of either keeping the property or receiving a greater inheritance, if that is important to you. Finally, when you choose to defer property taxes as opposed to not paying them, you avoid the added cost of penalties and higher interest.
Ultimately, the way you choose to address your property tax payments is your decision. At The Senior Source, we want to make sure you have all the information you need to make the best choice that achieves your financial goals. Financial coaching and counseling are provided by appointment. Call The Senior Source at 214-823-5700 to schedule.
Debbie Burkham has been serving the Dallas community in the nonprofit financial sector since 1996. Her background includes tax preparer, credit counseling, debt management counseling, bankruptcy counseling and housing counseling. As a Financial Coach at The Senior Source, she helps clients achieve financial goals and protect their financial security. In her spare time she enjoys spending time with family, friends, and animals. Information for this story was gathered from Glen Hegar, Texas Comptroller of Public Accounts, John R Ames, Dallas County Tax Assessor/Collector, and Federal Trade Commission.