Using a Reverse Mortgage to Pay for Assisted Living and Nursing Home Care
Reverse mortgages are a special type of financing that allows qualified borrowers age 62 and older to access cash from their home equity. Unlike typical mortgages, where the borrower has to make monthly payments to the lender, with a reverse mortgage, the borrower doesn’t pay anything and instead receives payments drawn from their home’s equity. Until the borrower no longer uses their home as their primary residence, the reverse mortgage does not need to be repaid. While this type of financing may not be the best solution for every senior homeowner, many find that a reverse mortgage can be beneficial – especially to those who need to pay assisted living costs.
The cost of assisted living can vary greatly from region to region and from facility to facility; however, the national averages for senior care range from more than $1,300 to more than $6,700 per month, depending on the type of service.
According to data from the Genworth 2012 Cost of Care Survey, the average monthly cost for adult day care was $1,322. For assisted living, the monthly average was $3,300. For in-home care, the average monthly cost was slightly higher at $3,432. Double-occupancy nursing home care averaged $6,083 per month and single-occupancy nursing home care averaged $6,753 per month.
While Medicare and Medicare supplements are often relied upon by seniors or their immediate family to cover these costs, they often do not cover the full amount, or they only cover the basic care prices and do not cover any special services.
Many seniors find that a reverse mortgage can help ease the financial burden of assisted living costs. This is more frequently the case when one spouse needs assisted living or nursing home care while the other spouse can remain in the home. The emotional stress alone can be a challenge in these cases, so adding financial strains into the mix can further complicate life and prevent a caregiver from focusing on what’s really important – taking care of their loved one.
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Reverse Mortgages and Nursing Home Care
Reverse mortgages can also be used to help a senior pay for their elderly parents’ nursing home care. One of the biggest benefits of a reverse mortgage is that the payments are not restricted to certain types of costs. In other words, a reverse mortgage borrower can use the money they receive to pay for whatever they want. So whether you need to fund your spouse’s assisted living care, help pay for an aging parent’s nursing home costs, or cover special medical care for a child or grandchild, a reverse mortgage can provide you with the money to pay for some of life’s most pressing needs.
Because reverse mortgages actually pay out to the borrower, the money received may alter the homeowner’s income and resources to the point where they will not be eligible for certain need-based benefits. If you are a senior homeowner and feel that nursing home care may be in your near future, you should weigh the pros and cons of a reverse mortgage before making a final decision.
Taking Medicaid Into Account
Here’s how the Medicaid/nursing home process usually works: In general, Medicaid allows you to have no more than $2,000 plus a house and an automobile*. If a Medicaid recipient is married, the rules may be a little different and the amount of money you’re allowed to have may be higher. When you have a reverse mortgage, the amount of money you receive from that mortgage (usually referred to as proceeds) may boost your income or financial resources to the point where you exceed the maximum threshold. For instance, if you take out a lump sum reverse mortgage and your proceeds are $10,000, any money that you retain after the month you received the proceeds will be considered a resource. So, if you get $10,000 as a result of your reverse mortgage proceeds, and you spend $7,000 of it that same month, the $3,000 that is left over will be added to your resources. That alone may bump you out of the $2,000 eligibility bracket, and if you have additional funds, then you’re more likely going to be over the limit for Medicaid. Because Medicaid is a “means-tested” benefit (meaning they evaluate your eligibility based on your income and financial resources), you must be very careful when taking out a reverse mortgage.
[Related: More on reverse mortgages and medicaid]
You may be thinking that this situation can be avoided if you opt for monthly payments instead of the lump sum. It may be possible to accept monthly proceeds from your reverse mortgage and still be eligible to receive nursing home care through Medicaid; however, when you opt for monthly payments, the proceeds act to increase your income, which – if high enough – could bump you over of the eligibility threshold.
Depending on your established income and resources before a reverse mortgage, and depending on whether or not you see nursing home care as a likely possibility in the next 5 or 6 years, a reverse mortgage could still be a beneficial choice for optimizing your lifestyle and finances. The most important thing you can do as a senior homeowner is to educate yourself on how the reverse mortgage process works. A lot of reverse mortgage lenders are hesitant to bring up the nursing home issue, since it presents a risk to the borrower; however, a reputable lender who practices ethical lending will gladly go over the options with you.
In addition to getting information from a lender, you should also protect yourself by reaching out to local resources in your area that specialize in senior care, financial planning or housing counseling. The U.S. Department of Health and Human Services has a very informative and easy-to-navigate website dedicated specifically to long term elder care. Visit it here, http://longtermcare.gov, to get more information on nursing home care, costs, regulations and more.
You can also visit the U.S. Department of Housing and Urban Development (HUD) for more information on reverse mortgage loans. Their website also has links to help you find a reverse mortgage counselor in your area who may be able to help you determine if a reverse mortgage is right for you. Visit their site here – http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome – for details.