Using a Home Equity Loan or Reverse Mortgage to Pay for Long-Term Care

Part 4, Chapter 14: Specialized Situations: Coverage for Long-Term Care Page 10

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If you are planning to continue living in your house, you may be able to provide for long-term care at home through a reverse mortgage or a home equity loan. In a reverse mortgage, a bank or mortgage company makes arrangements to pay you a certain amount of money each month or, if you prefer, makes arrangements for you to draw on a pre-established line of credit. As you withdraw money, the equity that you have in your house will decrease. When your house is eventually sold, the account will be settled with the bank or mortgage company.

Determining the precise amount of available equity in your house can be somewhat complex. However, the basic idea is simple: In general, the amount of equity that's available in a house represents the difference between the current value of the house and the existing mortgage, if any. Thus, if your house is currently worth $250,000, and you owe $50,000 on your existing mortgage, your present equity is approximately $200,000.

However, the amount of money that will actually be available to you through a reverse mortgage depends on a number of factors. Those factors may include the interest rate you are paying, the closing costs involved in the mortgage, fees, the amount of equity that you have in your house, and the type of reverse mortgage you have chosen.

Check with your lender to review the different types of reverse mortgages. In addition, there are booklets that can help you understand the basic differences between various types of reverse mortgages (See Appendix B).

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