NCPA - National Center for Policy Analysis


February 10, 2005

Reverse mortgages could be used by millions of older adults to pay the rising costs of long-term care, a study by the National Council on the Aging has found.

One of the paradoxes of our long-term care system is that older Americans are struggling to live at home at the same time they own more than $2 trillion in untapped wealth, the report said.

According to Council president James Firman:

  • Senior homeowners have, on average, $72,128 in equity that could be tapped to pay for years of home care visits or for home modifications.
  • The nation spends about $135 billion a year on long-term care, most of it paid by Medicaid or out of pocket by individuals.

Reverse mortgages are loans that allow homeowners aged 62 years or older to convert home equity into cash while still living in their houses. They receive the money as a lump sum, line of credit or monthly payments. The loan comes due when the borrower moves out or dies.

Mark McClellan, Medicare and Medicaid administrator, estimates that increasing the market for reverse mortgages could save Medicaid $3.3 billion annually by 2010.

But the study found that many older adults are reluctant to use a reverse mortgage to "age in place," seeing it as an option mainly for the financially desperate.

Many worry that they risk impoverishment or won't be able to leave a legacy to their children if they tap home equity, the report said.

Consumer advocates also recommend that older adults who are "cash poor but house rich" consider alternatives to reverse mortgages, such as deferring payment of real estate taxes. Many states, including Texas, allow that for certain seniors.

Source: Bob Moos, "Seniors Can Tap Homes For Money," Dallas Morning News, February 1, 2005; based upon: Barbara R. Stucki, "Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action," National Council on the Aging, January 26, 2005.

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