Reverse mortgages could help an estimated 13.2 million elderly homeowners pay for long-term care, according to a report published by the National Council on the Aging.

Of the 13.2 million eligible households, an estimated 9.8 million currently have an impairment that can make it difficult to live at home, according to the study, “Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care.” The study had support from the National Reverse Mortgage Lenders Association.

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their home, without having to sell their home, give up title, or take on a new monthly mortgage payment.

In total, these households could access as much as $695 billion through reverse mortgages.

A borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage that could pay a family caregiver $500 a month for almost 12 years, $1,120 a month in adult day care services for almost five years, or $2,160 a month in home care – daily care for at least four hours – for 2.5 years.

The study is the first of a multiphase project focused on educating policymakers, the healthcare industry, the aging community, and others about the potential use of reverse mortgages to help reform America’s long-term-care financing policies.

The study also shows how reverse mortgages can lessen financial pressure not only on individuals and families, but also on state Medicaid programs and the federal government.

The NCOA projected annual Medicaid cost savings of $3.34 billion nationwide by 2010 assuming four percent of America’s eligible seniors used a reverse mortgage to pay for healthcare services, or if one in four used a reverse mortgage, $4.86 billion would be saved. 

Reverse mortgage loan proceeds can be used for any purpose, and taken out as a lump sum payment, fixed monthly payment, line of credit (except in Texas), or a combination. The loan amount depends on the borrower’s age, current interest rates, and the value and location of their home.

A reverse mortgage isn’t repaid until the borrower moves out of the home permanently, and the repayment amount can’t exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or borrower’s heirs or estate. A senior’s home doesn’t have to be owned free and clear to qualify for a reverse mortgage.

The report was funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation.

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