Paying for long-term care at home with a reverse mortgage

When it comes to considering long-term healthcare costs in retirement, very few retirees include these costs as part of their budget. Medicare and supplemental costs alone average 14 percent of a person’s income. However, Medicare will not cover long-term care. The U.S. Office of the Assistant Secretary for Planning and Evaluation states that seniors retiring this year will average $138,000 for long-term care.  

Unfortunately, only 19 percent of retirees understand Medicare benefits, according to a 2015 study by Merrill Lynch. Reasons vary for not planning ahead, but top responses include not understanding Medicare benefits, not having money to set aside for long-term care,  and holding hope that they will not need long-term care. 

Unfortunately, the probability is that 70 percent of individuals over age 65 will require some kind of long-term care during their life. In most cases, the person requiring care wishes to remain in the home. However, there are costs for bringing someone into the home to help. Options for paying for long-term, in-home care include: 

Private pay and reverse mortgages offer immediate assistance paying for long-term, in-home care. If someone opts to pay for care in their home, the funds will usually come from investments or savings,  which decreases the amount available for future income.

For someone requiring care in a nursing home, the situation becomes more complicated. According a 2015 survey conducted by Genworth, the average annual cost of long-term care in a nursing home in South Carolina is $69,350 for a semi-private room or $75,008 for a private room. Annual costs for in-home care were $41,000, based on eight-hour visits, five days a week. This averaged about $80 a visit.

Ultimately, if the spouse needing care in a nursing facility applies for Medicaid, the spouse at home will be able to keep $66,480 in countable assets and up to $2,841 monthly income. The reminder of countable assets held must be spent on care. This is a welfare program and specific rules exist, so it is best to consult a professional who understands the rules. By exhausting assets and limiting income, the spouse at home will most likely need additional funds to remain in the home. A reverse mortgage can provide those funds since proceeds come from a loan are not considered a countable asset. However, the reverse mortgage needs to be in place before applying for Medicaid.

The reverse mortgage is administered by the Department of Housing and Urban Development (HUD) and is insured by Federal Housing Administration (FHA). Urban legends have persisted for years that the lender will own the home with a reverse mortgage, but that’s not true.

One last thought is for anyone who has not set money aside for long-term care. If you are healthy and qualify, getting a long-term care policy can protect against spending down your assets for in-home or nursing home care. Using a reverse mortgage to pay for care is a way to protect yourself and preserve your assets.

The proper name for a reverse mortgage is Home Equity Conversion Mortgage. When someone has a reverse mortgage, that is exactly what they’re doing: converting a portion of their equity into usable money.

REVERSE MORTGAGES ARE UNIQUE

This story was originally published August 28, 2015 at 1:23 PM with the headline "Paying for long-term care at home with a reverse mortgage."