Use Home Equity to Pay for Long-Term Care in California

What Else May Help Before or Alongside Home Equity

Before borrowing against a house, a family usually looks at what else may help. Each option below involves something different and trades something different.

A budget and benefits review. This means listing Social Security, SSI (Supplemental Security Income), any pension, and the public benefits the household may not yet be claiming. The Consumer Financial Protection Bureau notes that state and local programs can help with utilities, fuel and home repairs. The tradeoff is time and paperwork.

Medi-Cal and in-home programs. Medi-Cal is California's Medicaid program. It can cover long-term care for residents who meet its income and asset rules, and the California Department of Health Care Services administers it. California also runs In-Home Supportive Services (IHSS) and CalAIM programs that may lower out-of-pocket costs for care at home. These programs have eligibility rules and waiting periods, and they may not cover every hour of care. The ways families combine these programs are part of paying for in-home care in California.

Property tax relief. The State Controller's Office administers a Property Tax Postponement program for eligible older homeowners. It can free up cash without a loan against the home, but only for those who meet its rules.

Help from family. Relatives may give care or money. That help has limits, because caregivers have jobs, health and families of their own.

Selling or downsizing. Selling turns the home into cash. The trade is the home itself.

Long-term care insurance. This is a policy bought before care is needed. Insurers screen applicants, so a person who already needs care may not be able to buy a new policy. The California Department of Insurance regulates these policies.

Knowing what else may be available can change how much, if any, home equity needs to be touched.

How Home Equity Products Work — and What Each One Trades

Three common products let an owner borrow against a home while keeping it.

A home equity loan is a single lump sum borrowed against the home. The borrower repays it in fixed monthly payments. The home is collateral, meaning the lender can take it through foreclosure if the payments stop.

A home equity line of credit (HELOC) works more like a credit card secured by the house. The borrower draws money as needed, up to a set limit, and makes monthly payments on what has been drawn. The foreclosure risk is the same.

A cash-out refinance replaces the current mortgage with a larger one. The borrower receives the difference in cash and takes on a new monthly payment.

All three require ongoing monthly payments, and that is the key difference from a reverse mortgage. All three also depend on the lender's approval of the borrower's credit and income. The CFPB says a home equity loan or line of credit might be a cheaper way to borrow against equity, but that these loans carry their own risks, usually have monthly payments, and depend on income and credit. The tradeoffs are set side by side in a reverse mortgage vs home equity loan comparison.

Reverse Mortgages and Long-Term Care: What the HECM Program Involves

A reverse mortgage is a loan against the home's equity that does not require monthly mortgage payments while the borrower lives in the home as a principal residence. The money still has to be repaid later, and the debt grows in the meantime.

The only reverse mortgage insured by the federal government is the Home Equity Conversion Mortgage, or HECM. According to HUD, it is available only through a Federal Housing Administration (FHA)-approved lender. The governing statute is 12 U.S.C. § 1715z-20. It defines an eligible homeowner as one "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe."

The conditions matter as much as the cash. The CFPB explains that interest and fees are added to the loan balance each month, so the amount owed grows over time. The borrower must use the home as a principal residence, pay the property taxes and homeowners insurance, and keep the house in good condition. The loan comes due when the last borrower dies, sells the home or moves out. The statute generally limits what is owed to what the home brings: under 12 U.S.C. § 1715z-20(d)(7), the homeowner is not liable for any shortfall between the loan balance and the net sale proceeds.

Before closing, the borrower must receive counseling from an independent third party under 12 U.S.C. § 1715z-20(d)(2)(B). HUD lists counselors on its HECM Counselor Roster at (800) 569-4287.

Under 12 U.S.C. § 1715z-20(d)(9), the borrower picks how a lender pays: a line of credit; monthly payments over a chosen term; a term plus a line of credit; monthly payments for as long as the borrower lives in the home (called tenure); tenure plus a line of credit; or another method HUD approves. The amount depends on factors including the youngest borrower's age, as HUD's page explains.

Federal rules limit the origination fee, and the lender discloses the actual fee.

Medi-Cal, Estate Recovery, and What Happens to the Home

The home connects care, Medi-Cal and the next generation, so Medi-Cal questions tend to come up next.

Medi-Cal can pay long-term care costs for Californians who qualify, and the California Department of Health Care Services sets its eligibility rules. Those rules include how the home itself is treated while the applicant or a spouse lives there.

California also has a Medi-Cal estate recovery program. After a beneficiary dies, the state may seek repayment from the estate for certain long-term care costs Medi-Cal paid, and the home can be subject to that claim. The Department of Health Care Services publishes the current rules on what is recovered and when.

A reverse mortgage changes this picture. The loan balance grows, so less equity is left in the estate when the loan is repaid. That can change what remains for both heirs and any estate recovery claim.

Federal law makes this part of HECM counseling. Under 12 U.S.C. § 1715z-20(f)(4), a counselor must disclose "that a home equity conversion mortgage may have tax consequences, affect eligibility for assistance under Federal and State programs, and have an impact on the estate and heirs of the homeowner." For a household relying on Medi-Cal, the Department of Health Care Services or a California elder law attorney can say how these rules apply to its own facts.

If Medi-Cal is part of the plan now or may be later, how the home is handled matters for the whole family.

Keeping the Home: Ongoing Costs You Still Have to Cover

For a family hoping that care at home keeps a parent in the house, the ongoing costs of the house still have to be paid.

Property taxes. These stay due whatever product is used. For HECM borrowers, unpaid taxes can make the loan due sooner, as the CFPB notes. The State Controller's Property Tax Postponement program may help eligible older homeowners defer them.

Homeowners insurance. Coverage has to stay in force.

Upkeep. The house has to be kept in good repair, and for a HECM borrower that is a loan condition.

Where care happens matters most. In-home care keeps the house as the principal residence. A move to a facility may not. The CFPB explains that a HECM must be paid off when the last surviving borrower or Eligible Non-Borrowing Spouse dies or no longer lives in the home as a principal residence. If a borrower is away more than 12 consecutive months in a facility such as a nursing home or assisted living, with no co-borrower living in the home, others living there will have to move out unless they can repay the loan or qualify as an Eligible Non-Borrowing Spouse.

The CFPB also cautions that if a health issue may cause a move soon, a reverse mortgage is an expensive way to cover short-term cash needs. A HUD-approved counselor or an elder law attorney can explain how these rules fit a particular plan.

Where care happens, at home or in a facility, can change the picture for any loan tied to the home.

Questions Worth Sitting With Before Tapping Home Equity

These are questions to think through, not requirements. A family weighing these choices for a parent may find that the answers point toward one option more than another.

Has every benefit been claimed? This includes Medi-Cal, IHSS, CalAIM and property tax postponement.

Is the care need short-term or ongoing? A short need and a long one can point to different options.

Where will care happen? Staying home and moving to a facility lead to very different results under a reverse mortgage.

Does a spouse or partner live in the home? HUD's rules on an Eligible Non-Borrowing Spouse affect who may stay after a borrower dies.

What are the goals for the house? Staying, passing it to family and converting it to cash each lead to a different set of options.

Caution with strangers is part of the process. California's Department of Real Estate warns seniors about reverse mortgage scams and urges using only licensed professionals. The Department of Financial Protection and Innovation explains that anyone in the business of making or servicing residential mortgage loans in California needs a license under the state's lending law, with exemptions including banks and licensed real estate brokers. Families helping a parent sort this out may also find guidance on helping aging parents use home equity useful. A HUD-approved HECM counselor or a California elder law attorney can work through the answers for a specific situation.