WASHINGTON — A study released by The National Council on the Aging (NCOA) shows that reverse mortgages can be used by over 13 million Americans to pay for long-term care expenses at home, allowing many to remain independent and in their homes longer.
“The study shows that reverse mortgages have significant potential to help many seniors pay for help at home or to make home modifications. It also points to the need for strong consumer safeguards and lower transaction costs if these loans are to appeal to the millions of older Americans who could potentially benefit,” said NCOA president and CEO James Firman.
According to the study, there are some 9.8 million elder households (aged 62 and older) that are dealing with an impairment that can make it hard to live at home. In total, these households could access as much as $695 billion through reverse mortgages. For individuals, the extra cash could go a long way to help with family caregiving and other long-term care expenses. For example, a borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage loan that could pay them $500 a month for almost 12 years.
“This is an important study that, for the first time, shows that elderly homeowners, many with chronic conditions, can use reverse mortgages to pay for care at home,” said Jim Knickman, vice president for Research at the Robert Wood Johnson Foundation. “We hope that these findings will prompt new thinking into how the nation addresses the challenge of financing long-term care.”
Reverse mortgages are loans that allow homeowners aged 62 and over to convert home equity into cash while living at home for as long as they want. Borrowers continue to own their homes, and do not need to make any monthly payments. Instead, they can choose to receive the funds as a lump sum, line of credit, or as monthly payments (for up to life). The loan comes due only when the last borrower moves out, dies or sells the home.
The “Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care” report, funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation, also shows how reverse mortgages can alleviate financial pressure not only for individuals and families, but also for state Medicaid programs and the federal government. Increasing the market for reverse mortgages could save Medicaid $3.3 billion (with a four percent take up rate) annually by 2010.
“Many seniors and their families can benefit from effective ways to pay for the long term care services they need, in the setting they prefer,” said Dr. Mark McClellan, administrator of the Centers for Medicare & Medicaid Services. “NCOA’s report shows that reverse mortgages can provide real help in financing long term care needs.”
However, there are several obstacles to their growth for this purpose. For example, the NCOA study shows that while two-thirds (67 percent) of older homeowners today have heard of a reverse mortgage, only 9 percent indicate that they are likely to use this financing option to pay for assistance at home. Many worry that they risk impoverishment, or won’t be able to leave a legacy to their children if they tap home equity. The cost of these loans, and current Medicaid policies on how reverse mortgages affect eligibility for long-term care benefits, also appear to be barriers.
“We need expanded public education, and additional work to explore how to reduce the cost of tapping home equity, to strengthen consumer protections, and promote innovation,” said Barbara Stucki, PhD, project manager for NCOA’s Use Your Home to Stay at Home project. “Overcoming these obstacles will mean that reverse mortgages can play an important role in helping many older Americans pay for the supportive services they need to continue to live at home safely and comfortably.”
According to Firman, NCOA will continue to play a leadership role in promoting the appropriate use of reverse mortgages to help pay for long term care at home.
Founded in 1950, The National Council on the Aging is a national network of organizations and individuals dedicated to improving the health and independence of older persons; and increasing their continuing contributions to communities, society, and future generations.; For more information on NCOA, visit www.ncoa.org.
Reverse Mortgages for Long-Term Care “Use Your Home to Stay at Home”™
Started in September 2003 by The National Council on the Aging (NCOA), the “Use Your Home to Stay at Home” project has developed a national blueprint for encouraging the use of reverse mortgages to help older Americans pay for long-term care services at home. Reverse mortgages are a special type of loan that allows people age 62 and older to convert equity in their home into cash while they continue to live at home for as long as they want.
Long-Term Care Costs and Home Equity
Currently, the costs of long-term care are primarily paid out of pocket by consumers or by Medicaid, the federal/state program designed to pay costs of health care for low-income individuals. In 2000, our nation spent $135 billion a year on long-term care for those age 65 and older, with the amount likely to double in next 30 years. Most of those dollars pay for care in skilled nursing facilities.
Recent studies show that older Americans, including those who have serious health problems and need long-term care, want to live at home rather than in an institution. Most elders (82 percent of those age 62 and older) own their homes and 74 percent of those own them free and clear. With over $2 trillion tied up in home equity, this financial resource has the potential to dramatically increase the ability of seniors to pay for long-term care at home. Reverse mortgages can free up needed cash while enabling seniors to continue to own their home.
Of the nearly 28 million American households age 62 and older, NCOA has found that almost half (48 percent), or about 13.2 million, are good candidates for a reverse mortgage. The amount that these older households could receive from a reverse mortgage is substantial – on average $72,128. These funds can go a long way to pay for help at home and for retrofitting the home to make it safer and more comfortable. For some, they could be used to purchase long-term care insurance if they qualify. In total, an estimated $953 billion could be available from reverse mortgages for immediate long-term care needs and to promote aging in place.
For many older families, home equity is their single, biggest financial asset. Unlocking these substantial resources can help empower “house rich, cash poor” seniors by giving them additional resources to purchase the services they feel best suit their needs. The use of private funds from reverse mortgages can also strengthen community long-term care programs and reduce the burden on state Medicaid budgets.
Funders
The “Use Your Home to Stay at Home”™ project is funded by the Centers for Medicare and Medicaid Services, the federal agency that operates Medicare and Medicaid, and the Robert Wood Johnson Foundation. Program Management James P. Firman, Ed. D., NCOA president and CEO Jay Greenberg, Sc.D, executive vice president Barbara Stucki, Ph.D., project manager Headquarters The National Council on the Aging 300 D Street SW Suite 801 Washington, DC 20024 (202) 479-1200 (202) 479-0735 About NCOA
Founded in 1950, The National Council on the Aging is a national voluntary network of organizations and individuals dedicated to improving the health and independence of older persons; increasing their continuing contributions to communities, society, and future generations. NCOA is a national voice and powerful advocate for public policies, societal attitudes, and business practices that promote vital aging. NCOA is an innovator, developing new knowledge, testing creative ideas, and translating research into effective programs and services that help community service organizations serve seniors in hundreds of communities. And, NCOA is an activator, turning creative ideas into programs and services that help community services organizations serve seniors in hundreds of communities. For more information on NCOA, visit www.ncoa.org.
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