Quick Answer
A LESA (Life Expectancy Set-Aside) is money reserved from your reverse mortgage proceeds at closing to pay your future property taxes and homeowners insurance, with the servicer making those payments for you from the set-aside. It greatly reduces the risk of a tax or insurance default, which is one of the main causes of reverse mortgage foreclosure. A LESA can be required based on your financial assessment, or chosen voluntarily for peace of mind, and it reduces the other funds available to you.
What Is a LESA?
A Life Expectancy Set-Aside is a portion of your reverse mortgage funds held back at closing specifically to cover property charges, mainly property taxes and homeowners insurance, over your expected lifetime. Instead of you paying those bills yourself, the loan servicer pays them from the set-aside as they come due. It functions much like an escrow account on a traditional mortgage.
Fully Funded vs Partially Funded Set-Asides
A fully funded LESA reserves enough to cover the estimated taxes and insurance for your projected lifetime, and the servicer handles those payments. A partially funded LESA sets aside a smaller amount and may send you periodic funds to pay the charges yourself. Which one applies depends on the results of your financial assessment during the application.
When a Set-Aside Is Required vs Voluntary
Lenders perform a financial assessment that reviews your credit history and ability to keep up with property charges. If that review raises concerns, a LESA may be required as a condition of approval. Even when it is not required, you can choose a voluntary LESA simply because you prefer the certainty of having taxes and insurance handled automatically.
How a LESA Affects Your Available Funds
Because a LESA reserves money for future property charges, it reduces the amount of cash, credit line, or monthly payments available to you from the loan. In other words, you are setting aside part of your benefit to protect the loan and your home. For many borrowers this tradeoff is well worth the security it provides.
The Upside: Protection Against Default and Foreclosure
The single biggest benefit of a LESA is protection. Because unpaid property taxes or insurance are a leading cause of reverse mortgage default and foreclosure, having those payments made automatically removes that risk almost entirely. It is especially valuable for borrowers on a tight or variable budget, or anyone who simply does not want to track those deadlines.
Is a LESA Right for You?
A LESA makes sense if your budget is tight, if your financial assessment calls for it, or if you value the certainty of never missing a tax or insurance payment. The main consideration is the reduced access to funds. To understand whether a set-aside fits your situation, talk with Miguel A. Vazquez, NMLS #401212, at Reverse Mortgage Plus, a licensed California broker, for a free and honest review.
