How to Pay for Long-Term Care With Home Equity

The Four Main Ways to Use Home Equity for Care

Home equity is the part of the home's value the owner holds outright: what the house is worth, minus what is still owed on it. Four tools let an owner borrow against it.

A home equity line of credit. This is a credit line secured by the house, drawn as needed, with interest charged on the amount drawn. It is often called a HELOC. It requires lender approval, income qualification and monthly payments.

A home equity loan. This is a single lump sum secured by the house. It is repaid in fixed monthly installments and requires income qualification.

A cash-out refinance. This replaces the current mortgage with a larger one and pays the difference in cash. It brings a new monthly payment, possibly at a different interest rate, and requires income qualification.

A reverse mortgage. The federally insured version is the Home Equity Conversion Mortgage, or HECM. It is for homeowners 62 and older and requires no monthly mortgage payment. According to the Consumer Financial Protection Bureau, interest and fees are added to the balance each month, so the amount owed grows. The borrower must live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. When the loan comes due is covered in detail below, because it matters most for care planning. The broader set of ways to get cash from your home includes selling as well.

What Each Option Gives You and What It Costs You

Each tool gives something and asks something back. The asking part is easy to miss.

HELOC. It offers flexible access to money as care needs change. It depends on income and credit, and monthly payments start right away. Many HELOCs carry a variable rate, so payments can rise. Depending on the loan terms, a lender may reduce or freeze the line if the home's value falls or the borrower's finances change.

Home equity loan. The payment stays the same, which makes budgeting easier. But a lump sum fixed today may prove too much, or too little as care costs grow. It adds a second monthly bill on top of any existing mortgage.

Cash-out refinance. The new rate may be lower or higher than the old one, depending on the market. It restarts the loan term, raises the total debt on the house, and involves a new closing.

Reverse mortgage. With no required monthly mortgage payment, it can free up cash flow. But the balance grows as interest and charges are added, and equity shrinks. The Federal Trade Commission warns this can use up much, or even all, of the equity. Falling behind on taxes, insurance or upkeep, or no longer using the home as a principal residence, can make the loan come due sooner than expected. Counseling with an independent counselor is required first.

Does a Reverse Mortgage Fit Your Care Plan — or Not?

The question that matters most here is where the person will live while receiving care.

A reverse mortgage may line up with care needs when the homeowner is 62 or older, plans to stay home with in-home help, has substantial equity, and lacks the income to qualify for a HELOC or home equity loan. The age rule comes from 12 U.S.C. § 1715z-20(b)(1), which 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." This option is also closely tied to staying in your home through retirement.

It generally does not fit care in a facility when the home stops being the principal residence. The loan comes due once the last borrower or eligible non-borrowing spouse dies, sells, or no longer lives there as a principal residence. The CFPB explains that if a borrower is away more than 12 consecutive months in a healthcare facility, such as a nursing home or assisted living, and no co-borrower lives in the home, anyone living there will have to move out unless they can repay the loan or qualify as an Eligible Non-Borrowing Spouse.

A spouse who is not on the loan has specific federal protections. Under 24 C.F.R. § 206.55, repayment can be deferred while an Eligible Non-Borrowing Spouse keeps meeting conditions, including being named in the loan documents at closing, living in the home as a principal residence, and, within 90 days of the last borrower's death, establishing legal ownership or another ongoing legal right to remain for life. The loan's other obligations must continue to be met.

Where the person receiving care will live is the single question that shapes which of these tools can even be considered.

Medicaid, Home Equity, and Estate Recovery: What to Know

For families already worried about running out of money, Medicaid is often the next question. Medicaid is a public program run by each state. It may cover long-term care for people who meet income and asset limits set by their state.

The home and eligibility. Medicaid rules often treat the home differently from other assets while the applicant or a spouse lives there. These rules vary by state, and the state Medicaid agency publishes its own.

Estate recovery. After a Medicaid recipient dies, a state may seek repayment of long-term care costs it paid, and that claim can reach the home. How this works also varies by state.

Borrowing before applying. Taking money from the house, through a loan or a reverse mortgage, before applying for Medicaid may affect eligibility, depending on how the money is used and the state's rules. Federal law treats this as part of HECM counseling: under 12 U.S.C. § 1715z-20(f)(4), the counselor must disclose that a reverse 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."

An elder law attorney or a benefits counselor can say how a particular state's rules apply to a particular family.

Other Paths Worth Knowing About

Borrowing against the house is one path among several, and some of the others cost nothing to explore.

A budget and benefits review. A benefits counselor, social worker or local Area Agency on Aging can look for programs the homeowner may already qualify for, including veterans' benefits and state help. Medicare Savings Programs, which are run by each state, may help pay Part A and Part B premiums; in most cases, income and resources must be below a certain limit to qualify.

Property tax relief. The CFPB notes that many localities have programs to help with property taxes, and that the county or town tax office can explain them.

Help from family. Some families share care costs informally or set up a written family loan. Each arrangement has its own practical and legal questions.

Selling or downsizing. Selling turns the equity fully into cash instead of borrowing against it. The money can fund a smaller home or a care community.

Long-term care insurance. For someone who does not need care yet, a policy may help with future costs. Price and availability generally depend on age and health at the time of applying.

Questions to Ask Before Using Home Equity for Care

Families weighing this often find the decision clearer once the right questions are on the table. These are questions to bring to a counselor, an attorney or a financial professional.

Will the homeowner stay in the house? If a permanent move to a facility is likely, that changes which tools work at all.

Is a spouse or partner staying in the home? This affects reverse mortgage eligibility and whether the non-borrowing spouse protections described above apply.

What do income and credit look like? These decide whether a HELOC, home equity loan or cash-out refinance is within reach.

Has anyone done a benefits review? Programs the homeowner already qualifies for may reduce how much needs to be borrowed.

Has an elder law attorney looked at Medicaid? Borrowing now can interact with eligibility later.

Has a HUD-approved counselor been involved? Counseling is required before a HECM. Under 12 U.S.C. § 1715z-20(d)(2)(B), it must come from an independent third party not connected to the loan or to the sale of other financial products. HUD keeps a HECM Counselor Roster and lists a counselor line at (800) 569-4287. The counselor must also discuss alternatives, which can help with any of these choices.