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NCOA Study shows reverse mortgages can help Seniors pay forlong term care at home

A study released today The National Council on the Aging 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 as 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 milli

ons 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 individ

uals, 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 of 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.