Nursing Homes
Use Personal and Family Assets
Many nursing home residents initially pay for their care with their own money — selling some assets or tapping into stock portfolios, pensions, or savings accounts. However, if extended care is needed and individuals can no longer afford to pay privately for nursing home care, many turn to help from sources such as Medi-Cal, a government program that allows some older, blind and disabled people to keep some assets while getting financial help with the costs of care.
Reverse Mortgages
A reverse mortgage is a loan against the value of a home that does not need to be repaid until the owner leaves or sells it. The arrangement allows homeowners who are at least age 62 to convert equity in their homes into one-time or monthly cash payments or a line of credit. The loan advances are not taxable and generally do not affect Social Security or Medicare benefits.
If the borrower moves into a nursing facility permanently, the loan from a reverse mortgage must be repaid within a short time — usually a year or so. And if the home is sold, as is often the case when a homeowner makes such a move, the loan must be repaid out of the proceeds.
Possible pitfalls. Reverse mortgages are rarely a good option if a homeowner is likely to enter a nursing home in the near future — or within three years or so. Some potential drawbacks include:
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Hidden costs. Reverse mortgages are expensive to secure, usually involving high costs for processing, insurance, interest, and ongoing services that are added to the overall loan costs.
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Estate planning complications. If the borrower leaves the home to family members or other beneficiaries, it will be encumbered with the reverse mortgage debt if it’s not paid off before death.
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Benefit ineligibility. Equity borrowed as a lump sum or line of credit may be counted as an asset that affects eligibility for Medi-Cal. Other low-income subsidies such as food stamps may also be jeopardized.
California law requires that, before applying for a reverse mortgage, potential borrowers must first receive advice on costs, implications, and alternatives from a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD).
For more information or to report potential problems with reverse mortgages, contact HUD’s Homeownership Center.
Help from Family Members Family members, particularly children, may also be able to help cover the costs of nursing facility care. Beware that if the financial support — cash or help with rent or other housing — is paid regularly, it may be considered part of an individual’s income, making him or her ineligible for Medi-Cal coverage.
But if a potential resident is not concerned about being disqualified for Medi-Cal, and there are relatives or others who are willing and able to contribute to care costs, it may be wise to get those commitments in writing to help avoid misunderstandings and emphasize their importance.