Reverse Mortgage for Long-Term Care

There’s a 70% chance that people over 65 will need some kind of long-term care, including services such as home care, assisted living and skilled nursing, according to government statistics.

The concern with Long-Term Care is how to pay for it. The costs for this type of insurance can be high, but when you need Long-Term Care, you will quickly realize you cannot put a price on home healthcare.

Access to your home’s equity

Most reverse mortgages involve a lump sum for an immediate need or a string of payments over time to use a certain percentage of home equity to fund a need. Because reverse mortgages are generally used by older people whose homes are paid off or nearly paid off, long-term care is one natural use of the funds.

Here’s an example of how a Reverse Mortgage can help with Long-Term Care:

Let’s say you’re 65. You don’t need long-term care now, but you want the security of knowing it will be there when and if you need it. You could, for example, get a $160,000 reverse mortgage line of credit that increases in value around 4% per year no matter what the value of your $300,000 home does.

When you reach your mid-80s and your need to pay for long-term care could be reaching a high point, the line of credit amount would be about $350,000.

As you use this available money, you don’t have to pay a monthly bill as you would with traditional home equity loans; the money is subtracted from the equity in the home. The line of credit comes due either when you move out of your home or die, in which case your heirs or your estate could pay the loan back either through sale of the home or other means.

Advantages over a HELOC

A Reverse Mortgage Line of Credit is advantageous over a home equity line of credit because with a HELOC, the borrower must begin making monthly payments immediately. With a reverse mortgage line of credit, the borrower doesn’t have to make monthly payments at all.

And, as indicated above, the available funds in this type of line of credit grow over time, while HELOCs typically provide a fixed amount that the borrower can draw against and that the lender could freeze at any time to preclude further borrowing.

Having as many resources as possible to cover long-term care needs is an important part of a holistic financial plan. A reverse mortgage line of credit can ensure you’ll have funds readily available at the time of need.