Financing Retirement, Retirement Planning

Paying for Long-term Care with Home Equity: A Financing Option Worth Exploring

Fact: 52% of people turning 65 will need some type of long-term care services in their lifetime. That means at some point, most people will have to consider long-term care options for themselves or a loved one. But it can be difficult to plan effectively when you don’t know exactly for what, when, where or how long care will be needed — because everything comes with a price tag.

The economic challenges associated with caregiving can be enormous, and only continue to rise. Whether it’s provided directly by family members or in the form of home health care, non-medical in-home care, assisted living, or a nursing home, the specific type of support can have a huge impact on its cost.

According to the latest Genworth Cost of Care Survey, annual assisted living costs, for example, jumped 67% from 2004 to 2018.The national median cost for a private room in a nursing home exceeded $100,000, while the national rate for home health care averaged $22 per hour.

And Medicare doesn’t cover many long-term chronic health care needs and services.

The reality? Costs for care exceed what most people can afford to pay, unless they have significant financial assets.

For many, Long-Term Care Insurance (LTCI) is the first logical option. It can be a good choice for some, but as with all options, it has advantages and disadvantages. It works best when you purchase LTCI at a younger age, ideally in your mid-50s. Premiums increase with age, and people who are over age 60 may have missed the window to purchase affordable long-term care insurance. In addition, each year after age 60 it becomes less likely that you will medically qualify.

Footing the bill for long-term care

It’s no surprise that many caregivers worry about the cost of long-term care. Often, they rely on a variety of payment sources, including long-term care insurance, government programs, private financing options and personal funds. But even if you have the money in your retirement account to pay for care that’s not covered by insurance, withdrawing early can have consequences:

1. Taxes on retirement income. Your savings can take a huge hit from withdrawal taxes and/or penalties.
2. Stunted growth of savings. Withdrawing money not only reduces the amount of funds available for future use, but also results in the loss in potential growth of those funds.
3. Uncertain future. If the care recipient lives longer than expected, you may prematurely deplete all your funds paying for care.
4. Diminished legacy. You risk leaving your heirs little or no inheritance.

Leveraging your home equity to cover care costs

When you don’t have enough saved or simply don’t qualify for enough funding, it’s important to be aware of financing alternatives. A Home Equity Conversion Mortgage — commonly known as an FHA-insured** reverse mortgage, can be a smart financial tool. Homeowners and homebuyers age 62 and older can use this loan option to borrow against their home equity, while still retaining ownership and living in their own homes. You can choose to receive a lump-sum disbursement, a steady stream of monthly funds, or a line of credit to help cover the cost of long-term care and other expenses.*

For homeowners and homebuyers as young as 60, Equity Elite is a fixed-rate reverse mortgage available in certain states exclusively through Reverse Mortgage Funding LLC (RMF) as the lender.^† This option is designed specifically for condominiums, higher-value homes, and those seeking lower upfront costs.

It’s important to note that as long as at least one of the borrowers lives in the home as his or her primary residence, the loan remains in force. That means funds can be used for a spouse or other co-borrower’s care if they have to move into a nursing home or assisted living facility. As with any mortgage, borrower obligations include keeping current with property taxes, insurance and maintenance.

Something to talk about

It’s impossible to know what type of care you or a loved one will need, and when. But a reverse mortgage loan may help offer relief, while sparing family members the burden of providing or paying for long-term care needs. Call Reverse Mortgage Funding, LLC (RMF) at 888-277-1567 and speak with an experienced reverse mortgage specialist to set up an in-person consultation.

This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans retire more freely, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating;* a 5-star / Excellent score on Trustpilot; 4.8 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call 888-277-1567 speak with a licensed reverse mortgage specialist to learn about our retirement financing products and solutions.

*Borrowers who elect a fixed-rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.

**This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.

^†Not applicable in all states; some states may impose a higher age requirement. Visit www.reversefunding.com/equity-elite for details.

Equity Elite Reverse Mortgage™ (“Equity Elite”) is Reverse Mortgage Funding LLC’s proprietary loan program, and it is not affiliated with the Home Equity Conversion Mortgage (HECM) loan program, which is insured by FHA. Equity Elite is available to qualified borrowers who also may be eligible for HUD, FHA’s HECM program or are seeking loan proceeds that are higher than HUD, FHA’s HECM program limit. Equity Elite currently is available only for eligible properties in select states. Please contact your loan originator to see if it is currently available in your state. 

Upon a maturity event, any non-borrowing individuals with an ownership interest in the property, including non-borrowing spouses, will have 90 days to purchase the property from the estate or, if the non-borrower inherits the property, pay the loan in full using any sources of funds available to them. Any non-borrowing individual, including a non-borrowing spouse, should have a plan to pay off an Equity Elite reverse mortgage upon the borrower’s death or any other maturity event. If the non-borrower is unwilling or unable to purchase the property or pay the loan in full, there is no protection for the non-borrower (including a non-borrower spouse) to maintain an interest in the home or to continue residing in the home past the maturity event and the non-borrower may be evicted upon foreclosure. The FHA HECM program has protections in place for certain non-borrowing parties, so a reverse mortgage applicant with certain non-borrowing parties should strongly consider a FHA-insured HECM loan (see HECM guidelines or ask an RMF representative for details). Under the Equity Elite reverse mortgage loan program, a maturity event occurs when the last surviving borrower no longer lives in the home as his or her primary residence for at least 12 months, the property charges (including taxes, insurance, or any other property charges) are not paid, required repairs are not completed or the property is not maintained, or any other maturity event, as specified in the Security Instrument, occurs.

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