The life expectancy set-aside (LESA) for taxes and insurance
How much of a HECM is held back to pay property taxes and insurance when the lender requires it or you ask for it, computed with HUD's formula and the federal life table.
Fully funded LESA
$46,475
$46,475 of a $142,890 principal limit (32.5 %) is held back to pay taxes and insurance.
| Life expectancy used | 10 years (120 months) |
| Monthly charges × 1.2 | $540.00 |
| Discount rate | 6.65 % + 0.5 % |
| Fully funded amount | $46,475 |
| Paid in year one (line 9) | $5,400 |
| Cash left in year one | $68,434 |
The LESA grows at the note rate + 0.5 % while unused; it is not cash you can draw.
Worked out by Radif Partners · How we calculate · factors read on hud.gov · not a loan offer
A life expectancy set-aside, or LESA, is the part of the principal limit a HECM lender holds back to pay property taxes, hazard insurance and flood insurance for the expected rest of your life. HUD's formula takes 20 % more than today's charges, spreads them over the youngest borrower's life expectancy from the Regulation Z table, and discounts each month at the expected rate plus 0.5 %. At 77, that table gives 10 years. With $5,400 a year of taxes and insurance and an expected rate of 6.65 %, the fully funded LESA is $46,475, 32.5 % of a $142,890 principal limit on a $330,000 home. The first year's $5,400 counts as an obligation, and the rest is removed from what you can ever draw: first-year cash falls from $73,834 to $68,434, later credit from $57,156 to $16,081. A May 2026 audit by HUD's Inspector General found that set-asides were running out early for an estimated 1,237 borrowers.
HUD's formula, term by term
The Handbook gives one formula for the fully funded set-aside: 1.2 × (PC ÷ 12) × [(1 + c)m+1 − (1 + c)] ÷ [c × (1 + c)m]. PC is the current yearly total of property taxes, hazard insurance and flood insurance. Dividing by 12 gives the monthly charge, and the factor 1.2 adds a cushion for increases over the borrower's life. The rest is the value today of that monthly charge paid at the start of each month for m months, discounted at c.
Here c is one twelfth of the expected rate plus the annual mortgage insurance rate, using the same expected rate that reads the principal limit factor. At 6.65 % + 0.5 %, c is 0.5958 % a month. And m is the life expectancy of the youngest borrower in years, times 12. The age is rounded up when the next birthday falls less than 183 days after the estimated closing date. For the 77-year-old in the example, $5,400 a year gives $540.00 a month after the cushion, over 120 months: $46,475.
Set-aside at another age
Fully funded LESA
$89,598
| Life expectancy used | 16 years (192 months) |
| Monthly charges × 1.2 | $780.00 |
| Discount rate | 6.65 % + 0.5 % |
| Fully funded amount | $89,598 |
The life table behind the set-aside
The years come from Appendix L to Regulation Z, the table lenders already use for the total annual loan cost disclosure. Its loan period 2 is the life expectancy of the youngest borrower in the U.S. Decennial Life Tables for 1979 to 1981 for females, rounded to the nearest whole year. It falls from 21 years at 62 to 3 at 95 and over, and the set-aside falls with it.
| Age | Years in the table | Months (m) | LESA for $5,400 a year |
|---|---|---|---|
| 62 | 21 | 252 | $70,767 |
| 65 | 18 | 216 | $65,901 |
| 68 | 16 | 192 | $62,029 |
| 71 | 14 | 168 | $57,564 |
| 74 | 12 | 144 | $52,414 |
| 77 | 10 | 120 | $46,475 |
| 80 | 9 | 108 | $43,173 |
| 83 | 7 | 84 | $35,818 |
| 86 | 6 | 72 | $31,728 |
| 89 | 5 | 60 | $27,336 |
| 92 | 4 | 48 | $22,619 |
| 95 | 3 | 36 | $17,554 |
Two ages one year apart can share the same figure, as at 74 and 75, both read as 12 years, because the table rounds to whole years. Below 62 the table has no row; this applies only to a younger eligible non-borrowing spouse, and the lender then sets the amount.
Fully funded, partially funded, or chosen
A set-aside is required by the result of the financial assessment. When the borrower's credit history or property charge history does not meet HUD's standards and no extenuating circumstance is documented, the lender must at least require a fully funded LESA, and it pays the bills itself. When the history is fine but residual income falls short of HUD's standard and no compensating factor applies, the minimum is a partially funded LESA, built on the monthly residual income shortfall instead of the charges: 1.2 × the shortfall, with the same discounting. With a $180 monthly shortfall, the example borrower would have a partial set-aside of $18,590. If a partial amount comes to more than 75 % of the full one, the full one is required. Funds in either kind of set-aside cannot be held in an escrow account.
Partial set-aside from a shortfall
Partially funded LESA
$24,787
| Life expectancy used | 10 years (120 months) |
| Monthly charges × 1.2 | $540.00 |
| Discount rate | 6.65 % + 0.5 % |
| Fully funded amount | $46,475 |
What the set-aside takes from your cash
On the HUD payment plan, the set-aside appears three times. Line 15 is its full amount, $46,475 here. Line 9 is what it will pay out in the first year, $5,400, and that amount counts among the mandatory obligations. Line 16, the remaining $41,075, is subtracted from the principal limit on line 20, the second branch of the first-year limit. The net effect on this $330,000 home is $5,400 less in the first year and $41,075 less afterward. The first-year limit page explains how lines 17 to 21 combine.
How long the money lasts, and the 2026 audit
The set-aside grows each month at one twelfth of the note rate plus the annual premium, and shrinks by each payment. If the charges stayed at $5,400 a year and the note rate at 5.99 %, the example set-aside would still hold $13,041 after 10 years. Charges do not stay flat, and that is the point of the audit published by HUD’s Office of Inspector General in May 2026 (report 2026-KC-0003). It estimated that 1,237 borrowers with fully funded set-asides from loans closed between 2018 and 2022 would have to start paying taxes and insurance out of pocket years earlier than HUD's formula assumed. In its sample, 72 of 80 set-asides were already empty or on track to run out on average 6 years early, and 31 borrowers had seen property charges rise by about 192 % on average.
The auditors noted that the formula still used the 1979-81 life tables and that HUD had not evaluated whether set-asides last as intended. They put the possible loss to HUD at up to $258 million if those borrowers default. HUD agreed to review the formula but disputed that figure, citing its own data that 90 % of borrowers with an empty set-aside whose loans were still active had not reported a tax and insurance default as of February 28, 2026. For a borrower, the practical reading is simple: a set-aside is sized on today's bills, and the Handbook requires the lender to tell you at closing that it may not cover the whole life expectancy. The taxes and insurance page describes what happens when it runs out.