How to Leverage Your House to Pay for Assisted Living
Assisted living is a popular option for older adults who need help with daily activities, but it’s increasingly expensive. The national median price tag for assisted living in 2016 is $43,539 per year, according to insurer Genworth’s annual survey. Most people move into assisted living on short notice after a change in mobility or health status, so the time to come up with funds is often short. If the combination of cost and time pressure has you in a bind, here’s how to leverage your house to pay for assisted living.
If you own your home outright or have a substantial amount of equity in it, you have two primary options. You keep the house and take out a reverse mortgage on it or you can sell your home and use the proceeds to pay for assisted living.
Using a bridge loan until you sell your home
In a hot real estate market, you may be able to sell your home quickly, without having to invest in major upgrades or repairs to get it market ready. When the market is slow and your home is unlikely to sell right away, a bridge loan can allow you to move into assisted living before your home is sold.
Bridge loans are offered by lenders who often specialize in working with senior homeowners. When you’re approved for a bridge loan, the lender typically pays your assisted living community directly. Once your home sells, the bridge loan is paid off from the proceeds, and the remaining money is yours to pay for your care.
Keeping your home and taking out a reverse mortgage
Reverse mortgages are a better solution when one person in the family is moving to assisted living while others remain in the home. These loans, also called home equity conversion mortgages (HECMs), must comply with extensive federal rules. Borrowers must be at least 62 years old and must meet with a qualified loan counselor before taking the loan.
The upsides to a reverse mortgage are
- There’s no monthly loan payment to make.
- Reverse mortgage funds usually don’t affect your Social Security income or Medicare eligibility.
- In most cases, you won’t have to pay taxes on the money you get from the loan.
- At the end of the loan, your estate can’t owe more than the home’s appraised value at that time.
- Your spouse may be able to continue to live in the home after your death.
The potential drawbacks are
- You must budget for and pay property taxes and insurance over the life of the loan.
- You must keep the home in good repair or the lender can end the loan.
- If the home is vacant for a year or more for any reason (spousal illness, an adult child relocated for work) the lender may end the loan and sell the home for repayment.
- If your heirs can’t pay the appraised value of the home when the loan is due, the lender will sell it on the open market.
Despite the potential downsides, a reverse mortgage can make the most financial sense for couples or extended families who need assisted living and don’t have other savings or a long-term care policy to cover the costs. You can find more information about reverse mortgages at the Federal Trade Commission website.
Need more ideas? You can find a detailed checklist of possible ways to pay for senior care here.