While some programs, like Better Government 2017 awardee nesterly, allow seniors to supplement their fixed incomes through renting spare rooms in their home, there is an alternative solution that can help seniors access their home equity without the burden of downsizing or the risk of foreclosure associated with reverse mortgages. Home equity makes up an estimated 83.98 percent of the net worth of people older than 65, but seniors rarely make use of property tax deferrals to access their home equity as a source of supplementary income. Most seniors, a whopping 81 percent of the 65-74 age bracket, are homeowners. While experts agree that property tax deferrals are not a one-size-fits-all solution for older people who would prefer a little more spending freedom, the Center for Retirement Research at Boston College believes that this opportunity is being underutilized.
The two better-known options to access home equity, reverse mortgages and downsizing, have contributed to a poor image of home equity solutions in general—and that stigma has unfortunately spilled over to property tax deferrals. Reverse mortgages are loans available to qualifying seniors that will be paid off with home equity when the homeowners die or move. However, several high profile examples of “widow/widower foreclosures”, where seniors enter into seemingly predatory reverse mortgage agreements, have hindered the advancement of this type of loan option. An especially prominent case involved current Secretary of the Treasury Steve Mnuchin, who faced backlash during his nomination when it was discovered Financial Freedom, a reverse mortgage lender, had foreclosed on 16,000 homes during his tenure as their CEO.
Though not associated with the horror stories of foreclosures and evictions like reverse mortgages, downsizing too remains an unpopular option. Downsizing to a smaller home or apartment has the potential to generate income from home equity and reduce other housing costs. When considering the well-documented age in place preference held by most seniors, however, the physical, financial, social, and emotional costs of downsizing don’t seem to be worth the extra spending money.
A 2017 Better Government competition proposal from the Center for Retirement Research at Boston College proposal outlines a plan to spread awareness and abate the stigma surrounding property tax deferral programs that could benefit seniors. Property tax deferrals, available to older adults in 26 states, allow older adults to age in place while accessing extra income by delaying an annual cost. The property taxes, along with the interest incurred at a rate of 8 percent in Massachusetts or lower in individual cities, are paid after the homeowners die or move but homeowners otherwise face no additional fees, unlike reverse mortgages. Deferring property tax furthermore does not bring the threat of eviction or foreclosure while the homeowners reside in the house.
In Boston, home-owning seniors over the age of 65 who make less than $57,000 annually are qualified to file for a property tax deferral in person or by mail and are only subject to a 4 percent interest rate.
In most areas, less than half of 1 percent of potential participants use tax deferral programs. The possible reasons for this small user rate are numerous and identifying barriers to entry is just one small part of the Center for Retirement Research’s plan. The Center wants to implement a three-phase initiative to increase awareness about property tax deferrals. First, they would need to collect data, of which there is currently little available, on existing property tax deferral programs in greater Boston. Next, they would begin to identify the characteristics of programs with high take-up. Finally, with a better understanding of those characteristics, the Center would help towns and cities engage in outreach and measure the impact of these interventions on program use.
The Governor’s Council to Address Aging has provided a powerful platform for the Center for Retirement Research to promote property tax deferral programs. Alicia Munnell, the Director of the center, is one of the 24 Council members and has been promoting property tax deferrals as an unconsidered option for increasing spending money available to seniors in interviews since April.
“If people had some more money, they would live better,” Munnell said in May.