A reverse mortgage is often described as a loan with no monthly payment, and in one sense that is true: the borrower does not send the lender a check each month the way a traditional mortgage requires. What gets lost in that pitch is that two other bills never go away, and missing them can put the home at just as much risk as missing a conventional mortgage payment would.
No Monthly Loan Payment, But Two Obligations Remain
Homeowners who take out a reverse mortgage, most commonly a Home Equity Conversion Mortgage insured by the federal government, are still required to pay property taxes and homeowners insurance for as long as they hold the loan, according to the Consumer Financial Protection Bureau. Borrowers must also keep the home in reasonable condition and use it as their principal residence; letting the property fall into serious disrepair or moving out for an extended period can violate the loan terms independent of any tax or insurance issue.
The CFPB has flagged this gap in understanding directly: some borrowers do not realize that a reverse mortgage eliminates the monthly loan payment but leaves every other homeownership cost squarely on their shoulders. That confusion has real consequences, since the bureau has found that close to 10 percent of reverse mortgage borrowers are at risk of foreclosure specifically because of unpaid taxes or insurance, not because of any missed loan payment.
A non-borrowing spouse adds another layer worth understanding before closing. Federal rules generally allow a spouse who is not named on the reverse mortgage to remain in the home after the borrowing spouse dies, provided certain conditions were met at the time the loan closed and the surviving spouse continues to pay the property taxes and insurance. Missing either of those two payments can still put even a protected non-borrowing spouse at risk of losing that protection, which is one more reason the tax-and-insurance obligation deserves attention long after the loan documents are signed.
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How an Unpaid Tax Bill Turns Into a Default
When a reverse mortgage borrower falls behind on property taxes or insurance premiums, the loan servicer typically pays the bill on the borrower’s behalf to protect the lender’s lien on the home, then adds that amount to the loan balance and treats the borrower as being in default. Left unresolved, that default can proceed toward foreclosure in much the same way a missed payment on a conventional mortgage would, even though the borrower never missed a monthly loan installment because none existed in the first place. Because the loan balance grows every time the servicer advances funds for taxes or insurance, a borrower who falls behind repeatedly can watch the equity cushion in the home shrink faster than expected. Servicers are generally required to send notices before a default proceeds toward foreclosure, and those notices typically spell out the exact amount owed and a deadline to cure it, which is the window during which counseling, a repayment plan, or a local relief program is most likely to head off a foreclosure filing entirely.
Set-Asides and Counseling Before It Reaches Foreclosure
Borrowers are not without options once a shortfall appears. A Home Equity Conversion Mortgage can include a Life Expectancy Set-Aside, funds held back from the loan proceeds at closing specifically to cover future property taxes and insurance, which reduces the risk of a later default for borrowers who anticipate a tight budget. For those already behind, HUD-approved reverse mortgage counselors, reachable through the servicer or through CFPB guidance on borrower responsibilities, can help arrange a repayment plan or point to state and local property tax relief programs before a servicer moves toward foreclosure. Acting as soon as a bill goes unpaid, rather than waiting for a formal notice, generally preserves more options.
Why the Fine Print Matters at Closing
Because the tax-and-insurance obligation is baked into every federally insured reverse mortgage, it belongs in the same conversation as the loan’s interest rate and fees when a homeowner is deciding whether to take one out. A borrower on a fixed income who already struggles to keep up with rising property tax assessments may find that a reverse mortgage solves a cash-flow problem in one area while reintroducing a version of the same risk in another. Reviewing several years of past tax and insurance bills, and asking a HUD-approved counselor to walk through a set-aside option, can help a prospective borrower judge whether the ongoing obligation fits a realistic budget before signing. Property tax bills in particular tend to rise over time as local assessments climb, so a set-aside sized to today’s bill may not fully cover the obligation a decade or two into the loan, another reason a periodic check-in with a counselor or the loan servicer is worth scheduling rather than assuming the original plan will hold indefinitely.
This article was produced with AI assistance and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
