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Reverse Mortgage Can Help with Long-Term Care

April 22, 2004
Reverse mortgages have the potential to pay for long-term care at home, according to a study released by the National Council on the Aging (NCOA).

“There’s been a lot of speculation whether reverse mortgages could be part of the solution to the nation’s long-term care financing dilemma,” said NCOA President and CEO James Firman. “It’s clear that reverse mortgages have significant potential to help many seniors to pay for long term care services at home.”

In 2000, the nation spent $123 billion a year on long-term care for those age 65 and older, with the amount likely to double in the next 30 years. Nearly half of those expenses are paid out of pocket by individuals, and only 3 percent are paid for by private insurance; government health programs pay the rest.

According to the study, of the 13.2 million who are candidates for reverse mortgages, about 5.2 million are either already receiving Medicaid or are at financial risk of needing Medicaid. This population would be able to get $309 billion from reverse mortgages that could help pay for long-term care.

“We’ve found that seniors who are good candidates for a reverse mortgage could get on average $72,128. These funds could be used to pay for a wide range of direct services to help seniors age in place, including home care, respite care or for retrofitting their homes,” said Project Manager Barbara Stucki, Ph.D. “Using reverse mortgages for many can mean the difference between staying at home or going to a nursing home.”

The study is part of NCOA’s National Blueprint for Increasing the Use of Reverse Mortgages for Long-Term Care, to be published in June. The blueprint will offer new insights into the potential market for reverse mortgages and recommendations for administrative action, regulatory changes, consumer protections, and demonstration programs.

Reverse mortgages are a special type of loan allowing people aged 62 and older to convert equity in their home into cash while they continue to live at home for as long as they want. Eighty one percent of households in the U.S. with homeowners age 62 and older own their own homes and many own them free and clear.

Seniors can choose to take the cash from a reverse mortgage as a lump sum, in a line of credit or in monthly payments. If they choose a lump sum, for example, Stucki said that they could pay to retrofit their home to make kitchens and bathrooms safer and more accessible – especially important to those who are becoming frail and in danger of falling. If they choose a line of credit or monthly payments, an average reverse mortgage candidate could use the funds to pay for nearly three years of daily home health care, over six years of adult day care five days a week, or to help family caregivers with out-of-pocket expenses and weekly respite care for 14 years. They could also use it to purchase long-term care insurance if they qualify.

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