[This article was originally published on February 18, 2005. The links were updated on June 20, 2018.]
A new study by the National Council on the Aging (NCOA) contends that reverse mortgages can be used by more than 13 million Americans to pay for long-term care expenses at home, allowing many to remain independent and in their homes longer.
'This is an important study that, for the first time, shows that elderly homeowners, many with chronic conditions, can use reverse mortgages to pay for care at home,' said Jim Knickman, vice president for Research at the Robert Wood Johnson Foundation, one of the study's funders. 'We hope that these findings will prompt new thinking into how the nation addresses the challenge of financing long-term care.'
A reverse mortgage is a loan that transforms the equity in a home into liquid cash that does not have to be paid back as long as the owner lives there. The loans, which are available only to those 62 and older, permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home, or for nursing home care later on. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out.
For individuals, the extra cash could go a long way to help with family caregiving and other long-term care expenses. For example, a borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage loan that could pay them $500 a month for almost 12 years.
But while the NCOA study shows that two-thirds (67 percent) of older homeowners today have heard of a reverse mortgage, only 9 percent indicate that they are likely to use this financing option to pay for assistance at home. Many worry that they risk impoverishment, or won't be able to leave a legacy to their children if they tap home equity. The cost of these loans, and current Medicaid policies on how reverse mortgages affect eligibility for long-term care benefits, also appear to be barriers.
For example, the report points out that reverse mortgage payments can affect Medicaid eligibility. The report suggests that eliminating barriers like this through innovative government programs could "unlock additional housing wealth by making the use of home equity more attractive to impaired, older homeowners."
For more on the report, 'Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care,' click here.
To learn more about reverse mortgages, click here.