A reverse mortgage can be a way to pay for in-home eldercare when you don’t have long-term care insurance and need services that Medicare doesn’t cover. It also can be a burden if you have to move out of your home for more than 12 consecutive months to get care in an assisted-living facility or a nursing home.

The rules described in this article apply specifically to a home equity conversion mortgage (HECM). The HECM is the most common type of reverse mortgage and the only one insured by the Federal Housing Administration (FHA).1

Why Use a Reverse Mortgage to Pay for Eldercare?

Many people do not have long-term care insurance. They may not know it exists, be able to afford it, or think it’s a good use of their money. They may also mistakenly think that Medicare will cover their long-term care needs. As a result, older people can suddenly find themselves needing assistance with what Medicare terms “activities of daily living.”2 Such assistance is generally necessitated by an illness or injury, and those affected can end up without having a way of paying for long-term care other than spending down their assets until they qualify for Medicaid.34

One way to get the money for such care could be to sell the home and use the proceeds to help finance the monthly costs of living in a care facility. However, if your needs are not severe enough to require assisted living or a nursing home, you might want to stay in your own home. It is not only likely to be more comfortable but also may be less expensive because you can purchase care by the hour instead of by the month.5

If your retirement savings and income are just enough to allow you to get by, you may not have a way to afford in-home care. That’s where a reverse mortgage can help. These loans let you tap into your home equity without moving out, needing good credit or a certain income to qualify, or requiring any monthly payments.

How to Use a Reverse Mortgage to Pay for Eldercare

A reverse mortgage allows homeowners ages 62 and older to access their home equity as a lump sum, a line of credit, a stream of monthly payments, or a combination of monthly payments and a line of credit.7 The more equity you have, the more money you can get from a reverse mortgage.8 If you don’t have at least 50% equity, then you may not qualify.9

A line of credit may be the best way to use a reverse mortgage to pay for eldercare. The amount of credit on which you can draw grows over time, and you don’t start accruing interest on your credit line until you actually start spending it.10

You could potentially take out a reverse mortgage line of credit at age 62 and let it grow for a decade or longer before you need to use it. You could also wait until you actually need the money to get the loan. There are pros and cons to both options, but reverse mortgage experts such as Jack M. Guttentag, who has a website called Mortgage Professor, have demonstrated how it can be advantageous for some people to establish an HECM line of credit as early as possible.11

The Bottom Line

A reverse mortgage can be a valuable financial tool for older homeowners with substantial equity. It can give them options to pay for eldercare at home that they otherwise might not be able to afford. It also can become an expensive obligation if you have to permanently move out of your home and into an assisted-living facility or a nursing home. 

Every strategy to pay for eldercare has its risks. It’s important to understand your options, so you can make the choice that feels the most comfortable.