Friday, October 13, 2006
What can ease the tax burden for Carlisle seniors?
Options exist for those Carlisle seniors struggling with high property taxes. However, for residents who don't meet stringent limits on income and assets, a choice may be necessary between staying in a current Carlisle home and retaining substantial equity to pass down to heirs.
The Assessors' office administers a number of town and state-funded programs, but according to Assessor John Spiedel, few Carlisle seniors take advantage of these, usually due to income/asset eligibility levels that are too high. Spiedel notes, for example, that the Elderly Statutory Property Tax Exemption, which provides up to $2,000 off the increase in taxes since enrollment, requires income below $22,152 and assets below $44,303 for a single person and income of $33,227 and assets of $60,917 for a married couple. "The law was passed in 1981 and the state's done very little to change it." Currently sixteen seniors take advantage of the program, with exemptions up to $1,300.
Seniors may qualify to defer taxes
The other program providing sizable tax relief allows seniors to defer taxes at an interest rate of 8% per year until the property is sold. Although only five residents take advantage of this, Spiedel believes it can be a good option for seniors with equity in their homes but limited cash flow. The income and asset requirements are similar to those for the Exemption program, and seniors can take advantage of both.
Other local programs provide smaller amounts. Fourteen townspeople take part in the Elderly Work Program, which provides up to $500 in return for volunteer work at $7 per hour. Each year, one to three residents have up to one-fourth of their tax bill picked up by the Voluntary Contribution Fund, which is financed by contributions received with tax remittances, and currently has about $6,000. An exemption from the Community Preservation Act surcharge is obtained by 28 low-income residents, not all of them seniors.
Information on these programs is sent out with tax bills or can be received by calling the Assessors' office at 1-978-369-0392.
Spiedel notes that all these programs are available only to those with low income. There are fewer options for those whose finances are above the guidelines but who still feel stressed to pay taxes. "We want to keep seniors in the community. They're really good people who made the town what it is," says Spiedel. On the other hand, he notes, seniors do not make up a disproportionate percentage of those who have difficulty paying, and it is important not to burden lower-income residents who are not seniors and often have fewer options for tax relief.
For seniors who are cash-poor but equity-rich due to high home values, several financing options exist for turning equity into cash. One of the most popular is a reverse mortgage, either offered privately or through the Housing and Urban Development (HUD) Reverse Mortgage program. Under this program homeowners 62 and older with little or no mortgage can borrow against the equity in their homes to receive a lump sum or periodic cash payments. The difference between this and a traditional mortgage or home equity loan is that principal and interest is not recovered by the lender until the home passes to another owner, so the borrower makes no payments (although HUD collects 2% of home value as an up-front payment plus one-half percent on the loan balance each year, these amounts are typically paid by the lender and charged to principal). At the time of sale or death, any equity above the principal and interest is returned to the owner or his/her heirs.
In addition to no payments, there are other advantages to a HUD reverse mortgage, including no income or asset limitations. Also, even if a homeowner lives long enough to collect more than the value of the home, under the HUD program he/she cannot be evicted, as FHA insurance covers the difference.
The downside of a reverse mortgage is the cost. An on-line blog called senior-living.information illustrates: a $300 per month payment at 12% over ten years will pay out $36,000 while reducing the equity in the home by $70,000. Hidden costs such as "origination fees, points, insurance premiums, closing costs, servicing fees, shared equity, and shared appreciation fees" can reduce equity further.
While a reverse mortgage may be an answer for the persons who need cash and are willing to pay more for the security of staying in their current home as long as they wish, those wanting to leave a substantial legacy to heirs should investigate alternatives. Laura Chelton of Wayside Mortgage recommends that Carlisle homeowners with substantial equity check into a standard mortgage or home equity loan at a lower interest rate than a reverse mortgage, and bankroll the cash.
"There definitely are options," says Chelton, "but they involve borrowing money, which (older) people shy away from." Some have lived through past hard times, and others worry that if a health or other setback occurred, they would be a risk. Also, "they want to leave something to their children." Given the choice between staying in Carlisle at the cost of spending down their equity, many, if not most, choose to downsize. Indeed, the lack of opportunity to downsize within Carlisle is probably a bigger factor in senior exodus than high taxes.
Information on reverse mortgages can be obtained at www.hud.gov or www.aarp.org/money.
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