How to use home equity to pay for assisted living

Paying for senior care like assisted living might not be high on your wish list. But even if it’s unpleasant to think about, having a plan can make the experience far easier.

That’s because assisted living and nursing home costs are on the rise. A year of senior care could easily set you back tens of thousands of dollars. And traditional health insurance or Medicare might not cover these costs long-term.

While you might think that you won’t be subject to these expenses, the majority of people do end up needing some form of long-term services and supports (LTSS).

“Our results show that 70% of adults who survive to age 65 develop severe LTSS needs before they die and 48% receive some paid care over their lifetime,” notes research from the Urban Institute, in contract with the U.S. Department of Health and Human Services (HHS) and the Office of Disability, Aging and Long-Term Care Policy (DALTCP).

So, there’s a good chance you’ll face long-term care expenses. As we’ll explore in this article, tapping into your home equity could help you cover those costs. That said, there are many factors to weigh, so consider speaking with financial and medical professionals before making any major decisions.

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Is using home equity for assisted living a good idea?

Using home equity to pay for assisted living is a good idea for some individuals, but it depends on your circumstances.

If you don’t have cash available to pay for long-term care, tapping into your home equity could help you access the money you need. You wouldn’t want a lack of funds to stand in the way of receiving healthcare and overall support.

However, using home equity to pay for assisted living also carries risks. For one, if you plan to return to your home, you’ll need to be comfortable with having that home equity debt. You wouldn’t want to put yourself in a position where you can’t pay back a home equity loan after receiving long-term care. Otherwise, you could end up losing your home.

In other cases, though, tapping into your home equity makes sense. For example, you might be comfortable using the proceeds from the sale of your home after you pass to pay back a home equity loan. If that’s true, then you might appreciate the flexibility of accessing the equity you’ve built up in your home during your lifetime. 

Granted, your heirs might not get as much inheritance in this scenario. But consider having a family discussion ahead of time and prepare for the worst-case scenarios. Everyone might be on board with using your home equity funds to pay for a nursing home, memory home or any other type of long-term care that you might need, rather than have you put off care due to a lack of money.

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6 ways to access home equity for assisted living

If you want to use your home equity to pay for assisted living or other types of senior care, you then have to decide how you want to access those funds. Six ways to do so include:

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1. Fraction Mortgage

A Fraction Mortgage provides flexibility to pay for long-term care. It’s an alternative to a traditional HELOC or home equity loan, where you receive a lump sum but don’t have to make monthly payments.* Instead, you can pay back the loan on your own schedule, or you can wait until the end of the loan’s 5 year term. At that point, you can see what you owe and either repay the loan or explore renewing for another term. 

Since the Fraction Mortgage is a first-lien home equity line of credit, you can redraw funds that you’ve repaid as long as you’re still within the draw period.

So, a Fraction Mortgage can be a great option if you have financial and medical uncertainty. If you don’t know how long you’ll receive senior care, you might not want to be locked into monthly repayments of your home equity loan. But rather than selling your home to free up cash, you might want the option to pay back the loan later on when you’re in a better financial position and can remain in your home. Keep in mind that a Fraction Mortgage is a first-lien loan, meaning that if you have an existing mortgage, you’d need to pay that off first with the Fraction loan.

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2. HELOC

A home equity line of credit (HELOC) can also be used to pay for assisted living needs or other medical bills. This option gives you access to a credit line that you can draw from as needed. For example, you might draw a few thousand dollars per month to pay as you go for an assisted living facility or adult day care.

However, HELOCs can have different repayment terms. Early on, you might only have to make interest payments. But then some HELOCs require full repayments, including interest, at the end of the draw period (when you draw money from your credit line). Others allow for a multi-year repayment period.

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3. Home equity loan

A home equity loan provides a lump sum payout based on the equity you’ve built up in your home. Also known as a second mortgage, a home equity loan for seniors can provide significant cash to take care of medical needs. But the repayment is more like a traditional mortgage, as you’d generally have a fixed monthly schedule of paying back the loan principal and interest. 

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4. Bridge loan

Another way to pay for assisted living is to use a bridge loan. As the name implies, this loan acts as a bridge until you can get other funding. It’s often used when moving from one home to another.

“A bridge loan is a short-term loan—repayment terms are typically less than 12 months—that can provide you with the cash you need to buy your new home whether or not you've managed to complete the sale of your old one,” explains Experian.

So, a bridge loan could be used to quickly get cash to pay for senior care. Then, if you wanted to use your home equity to pay back the bridge loan, you could do so a little bit later on. For example, you might take out a bridge loan and then a few months later decide to sell your home, using some of the proceeds to pay back the bridge loan and some to pay for assisted living expenses.‍

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5. Rent your home

Renting your home could also provide you with cash to afford senior care. Doing so doesn’t require giving up your home equity or accessing new funds via a loan. Instead, you’re essentially benefiting from the fact that you already have equity in your home, as opposed to being a renter yourself. You could rent your home out to build more equity by paying down your mortgage, or you might use the funds to directly pay for assisted living expenses.‍

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6. Sell your home

If you want to access all of the equity in your home and not have to repay it, then you might decide to sell your home. With these proceeds, you could have enough to pay for senior care. However, keep in mind that if you’re only in a senior care facility temporarily, you’ll need to find a new home.

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Can I use a reverse mortgage to pay for assisted living?

A reverse mortgage could potentially be used to pay for assisted living, but there are many caveats. A reverse mortgage provides homeowners ages 62 and older with a home equity loan that does not need to be repaid while they still live in that home. That’s where things get tricky regarding senior care.

If you need to move out of your home to go to an assisted living facility long-term, for example, then you might have to repay the reverse mortgage. There are exceptions, like if your spouse is a co-borrower and remains in the home. But it’s important to closely examine the terms of a reverse mortgage to see how moving out for senior care would affect your loan obligations.

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How much home equity do I need to pay for assisted living?

The exact amount of home equity needed to pay for assisted living can vary significantly from person to person. In general, though, it helps to look at averages. 

The median monthly cost for being in an assisted living facility in Washington State is $6000, according to Genworth. A nursing home with a private room is close to double that cost. 

Other types of long-term care add up too. If you want to stay in your home and receive support, that could even be more expensive than going to an assisted living facility. 

For example, 44 hours per week of in-home care like homemaker services or having a home health aide costs around $6,500 per month in Washington State. And if you receive daytime support outside your home, at adult day health care, that runs an average of $2,600 per month, finds Genworth.

Then the question becomes how many months you think you’ll need care for. Most people do not spend more than two years receiving paid long-term care, according to the Urban Institute, HHS and DALTCP research. 

If you’re already at the point where you think you’ll need long-term care, consider speaking with medical professionals to get an estimate of how long you might need these services. Then, use that number, along with the monthly cost of care, to figure out how much home equity you need to access.

What can I do to reduce assisted living costs?

One way to reduce assisted living costs is to obtain long-term care insurance to help pay for these expenses. Some types of life insurance policies and annuities also have long-term care benefits, but keep in mind that these can be complex.

“Life insurance policies and annuities may provide an attractive combination of benefits for some people, but because they are complicated financial products that usually involve income and estate tax issues, you should not purchase one without consulting an accountant, tax attorney or other trusted financial advisor,” notes California Health Advocates.

You can also see if you’re eligible for government support, though these options are generally for low-income individuals.

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Unlock home equity to pay for assisted living

Looking for a flexible way to access equity to cover assisted living costs? The Fraction Mortgage may be the right solution for you — no required monthly payments*, no age restrictions, and the owner does not have to remain in the home.

‍Get your free estimate today. 

Disclaimer: Information in this article is general in nature and not meant to be taken as financial advice, legal advice or any other sort of professional guidance. While information in this article is intended to be accurate at the time of publishing, the complexity and evolving nature of these subjects can mean that information is incorrect or out of date, or it may not apply to your jurisdiction. Please consult with a qualified professional to discuss your specific situation and confirm any information.