Understanding the Life Expectancy Set-Aside in a Reverse Mortgage

A Life Expectancy Set-Aside (LESA) is a key feature in certain reverse mortgage programs designed to help homeowners manage ongoing property-related expenses over time. When a LESA is established, a portion of the homeowner’s available equity is reserved specifically to pay property taxes, homeowner’s insurance, and other required charges for as long as the borrower is expected to live in the home.

Purpose of the Life Expectancy Set-Aside

The primary purpose of a LESA is to promote financial stability and protect both the homeowner and the lender. During the loan approval process, lenders are required to evaluate a borrower’s ability to meet property-related obligations. If the financial assessment suggests that the borrower may have difficulty maintaining these payments, a LESA is established to ensure these critical expenses are automatically paid on time.

The amount set aside is calculated based on the borrower’s age (or life expectancy), property tax and insurance costs, and the expected interest rate, in accordance with HUD guidelines. This ensures that sufficient funds are available for the entire anticipated term of the loan.

Benefits to the Homeowner

A Life Expectancy Set-Aside offers several important advantages to reverse mortgage borrowers:

• Long-Term Security: Ensures that property taxes and insurance premiums are paid for the borrower’s expected lifetime, helping prevent defaults or foreclosure.

• Convenience: Eliminates the need for the homeowner to manually manage or budget for these essential expenses.

• Peace of Mind: Provides confidence that key property obligations are consistently met, allowing the homeowner to remain in their home safely and comfortably.

For many retirees, the LESA offers valuable protection—particularly for those on fixed incomes—by ensuring their home remains secure and in good standing throughout their retirement years.

A Tool for Financial Stability

By incorporating a Life Expectancy Set-Aside into a reverse mortgage, homeowners can enjoy the benefits of aging in place with less financial stress. This safeguard helps ensure that essential property expenses are managed automatically, providing lasting peace of mind and allowing the homeowner to focus on what matters most—enjoying the comfort and security of home.