How to Convert the Equity in Your Home to Pay for Senior Care
Senior care is expensive. You can work to be financially responsible your whole life and still find the cost of care in your later years to be overwhelming. Many families face tough choices when it comes to trying to figure out how to pay for assisted living or a nursing home.
One of the most valuable assets many seniors have that can help soften the blow of assisted living expenses for their family members is their home.
Four Ways to Turn Home Equity into Income
Depending on the type of senior care you’re considering and the costs involved, different options for turning home equity into cash you can use now will make more sense. Here are the four main options to consider.
Sell Your Home
The first is probably the most obvious. If you’re living in a city with a strong real estate market, selling your home can result in a lump sum that can be put toward all those assisted living or nursing home expenses for years to come.
The downside is obvious though: you lose access to your home. If you need money to move into a senior care facility, that may not be a big deal. If you had hoped to age in place and either need help paying for in-home care, home modifications, or the care of a loved one that’s moving into a facility, then you’ll still want to hang onto that home if you can manage it.
- You get a big lump sum that can go toward the payments of a senior care facility.
- Most of what you get in the sale can be invested to earn a return, since you’ll only be paying out a portion each month to the facility.
- You don’t have to worry about house maintenance any more.
- You can no longer stay in your home.
- You can’t leave your home to loved ones or family members after you pass.
- If the lump sum runs out before your need for senior care ends, your family will have to find another way to pay for your remaining time in a facility.
Rent Your Home Out
If you’re moving into a senior care facility and therefore don’t need use of your home yourself, but you’re still not quite prepared to let it go, you can look for renters. Renters will pay you a set amount each month that you can put toward your senior care expenses (as well as whatever’s left on the mortgage, if applicable).
A big upside to renters is that the money will keep coming in, as long as you can keep people renting consistently. The downside is that it comes with extra work. Landlords have to deal with fixes, maintenance issues, and chasing down late payments. You can hire a property manager to help with that part, but they’ll take a cut of the rent you charge.
- Your home can stay in the family’s possession.
- You get a set amount of money coming in each month from the renters.
- Renting out a home involves either work on your family’s part, or the cost of hiring a property manager.
- Renters often put wear and tear on a home.
- You’ll have to find somewhere to put any stuff you own that doesn’t fit in your senior care facility.
Get a Home Equity Loan
Both of the last two options require moving out of the home in order to translate home equity into money you can use now, but you can start to cash in on your equity and maintain access to your home at the same time.
A home equity loan, sometimes also called a home equity line of credit (HELOC) is a loan banks make that uses the borrower’s home as collateral. Homeowners can take out money all at once or in batches as they need it for up to the approved amount. But you do need to make monthly payments for the loan to stay current. If you start to fall behind, you risk losing your home in foreclosure.
Home equity loans generally have relatively low fees and you can take one out whether or not you continue to live in your home. That makes it a good choice for people that would like to live in their home as long as possible, but may have to move to a senior care facility at some point in the near future.
For older seniors though, the reverse mortgage is a similar option that provides more consumer protections and may be a better fit for your needs.
- People of any age can apply if they have equity in a home.
- The fees are relatively low.
- You can have a HELOC whether or not you live in your home.
- If you don’t keep up with payments you could lose your home.
- Home equity loans have limited consumer protections.
- They’re often harder to qualify for than reverse mortgages.
Take Out a Reverse Mortgage
If you’re over 62 and either want to stay in your home yourself or have a spouse that plans to, then a reverse mortgage may be your best option. Reverse mortgages will pay you a monthly sum each month, on the condition that at some point the full amount will be paid back (probably when your home is sold, either after you move somewhere else or pass away).
A big catch is that you can’t keep a reverse mortgage if you have to move out of your home into assisted living or a nursing home, it only works for people who remain living in the home. If one spouse needs care in a facility, while the other is able to continue living in the home, then the reverse mortgage can help with the payments to a senior care facility. Otherwise it can be used for in-home healthcare or home modifications that make the house more practical to live in as you age.
- Relatively easy to qualify for as long as you’re over 62 and have home equity.
- You don’t have to make ongoing payments; the loan doesn’t have to be paid back until the owner dies or moves.
- Consumer protections ensure you’ll never owe more than the home is worth.
- The loan will have to be paid back when the owner dies or moves, which means your family will only be able to keep your home if one of them can pay the full amount back.
- An owner has to continue living in the home to maintain a reverse mortgage.
- If you use up all the equity you have early into your senior years, you’ll have to find another way to pay for senior care in your remaining years.
How to Decide if You Should Use Your Home Equity for Senior Care
If you’re low on other options, using your home equity may well be your only choice once your senior care expenses start to add up. Nonetheless, carefully consider which path is the best one for you and your family.
- Which senior care option is best for you? Different types of senior care cost different amounts – an adult day care will set you back far less than a nursing home, and in-home care is only an option if you keep your house and don’t rent it out.
- What other resources can you use first to help you pay? You shouldn’t start by leveraging your home. First consider other ways to pay for assisted living. Do you have long-term care insurance? Medicaid? Another resource may eliminate some of your need before you turn to home equity.
- Do you have family you want to leave your home to when you pass? This is crucial. Only some of the home equity options we discussed result in you being able to keep your home so you can leave it to loved ones after your death.
- What’s your spousal situation? If you’re married, you have to consider what’s best for your spouse as well. Can they continue to afford the house after you pass if you choose one of these options? Will they be able to afford their own long-term care when the time comes?
Clearly, there are a lot of factors to take into account in deciding whether to use your home equity to pay for senior care. If you find the decision overwhelming, that’s ok. Consider talking to a financial advisor who can help you better weigh your options so you can be confident you’re making the best decision for you and your family.