Long Term Care Funding: Strategic Use of Home Equity for Healthcare Costs

One of retirement’s most daunting financial challenges is long-term care costs—expenses for nursing homes, assisted living, or in-home care that Medicare doesn’t cover. These costs can devastate retirement savings, forcing seniors to spend down assets to qualify for Medicaid or burden families with care responsibilities and expenses.

Many seniors possess substantial home equity but limited liquid assets to cover potential care costs. Meanwhile, long-term care insurance has become increasingly expensive and often isn’t purchased until it’s too late. This creates a critical question: How can home equity fund long-term care needs?

Understanding how to strategically use home equity for care costs provides security, maintains dignity, reduces family burden, and preserves quality of life when health declines require assistance.

In this guide, you’ll discover:

• Long-term care costs and what they cover
• Why Medicare and standard insurance don’t pay for most care
• How reverse mortgages can fund care expenses
• Medicaid planning and home equity considerations
• In-home care versus facility care decisions
• Protecting spouses from impoverishment
• Timing considerations for accessing equity
• Family discussion strategies

This guide helps seniors and families plan proactively for potential care needs using available resources wisely.

Planning for long-term care funding? Schedule a call to explore home equity options.

What Do Long-Term Care Costs Actually Look Like?

Understanding costs helps with planning:

Nursing Home Care

Skilled nursing facilities provide comprehensive care including medical services, assistance with daily living, meals, and housing.

Costs vary dramatically by location, with some areas substantially more expensive than others. Annual costs can be very substantial, creating financial crisis for many families.

Assisted Living Facilities

Less intensive than nursing homes, assisted living provides housing, meals, and assistance with daily activities without skilled medical care.

Annual costs are lower than nursing homes but still substantial—often tens of thousands annually, varying by location and level of services.

In-Home Care

Home health aides or personal care assistants provide care in seniors’ own homes, ranging from a few hours weekly to round-the-clock assistance.

Costs depend on hours needed:

• Part-time assistance: Several thousand monthly
• Full-time care: Can exceed nursing home costs
• 24/7 care: Often the most expensive option

Memory Care

Specialized dementia and Alzheimer’s care in secure facilities with trained staff costs more than standard assisted living—often significantly more.

The Affordability Crisis

Most seniors cannot afford years of long-term care from savings and income alone. The average stay can consume substantial assets, leaving spouses impoverished or families financially devastated.

Why Don’t Medicare and Standard Insurance Cover Long-Term Care?

Critical misunderstandings about coverage:

Medicare Coverage Is Limited

Medicare pays for:

• Short-term skilled nursing (up to 100 days) after hospital stays
• Limited home health services following hospitalization
• Hospice care

Medicare does NOT pay for:

• Long-term custodial care (assistance with daily living)
• Assisted living facilities
• Ongoing nursing home care beyond the short rehabilitation period

Most long-term care needs fall into the “custodial care” category Medicare doesn’t cover.

Standard Health Insurance Doesn’t Help

Private health insurance and Medicare supplements follow Medicare’s lead—they don’t cover long-term custodial care.

Long-Term Care Insurance

Dedicated long-term care insurance provides coverage but comes with challenges:

Expensive premiums that increase over time, often becoming unaffordable in retirement.

Strict underwriting means many seniors can’t qualify due to pre-existing conditions.

Benefit limitations including waiting periods, daily/lifetime caps, and exclusions.

Many seniors either never purchased long-term care insurance or dropped it due to premium increases.

How Can Reverse Mortgages Fund Long-Term Care?

Reverse mortgages provide strategic solutions for funding care:**

Reverse Mortgage Line of Credit

Establish a growing line of credit while still healthy, leaving it untapped until care needs arise.

Benefits:

• Unused credit grows over time
• Available when needed without new applications
• No monthly payments
• Funds available for any care option

Strategy: Open reverse mortgage early, let credit line grow, access funds when care needs develop.

Monthly Payment Option

Regular monthly payments supplement income to cover in-home care assistance or assisted living costs.

Benefits:

• Predictable income stream
• Can cover ongoing care expenses
• Allows aging in place with support
• Reduces burden on family members

Lump Sum for Care Expenses

Access substantial equity immediately to pay for:

• Care facility entrance fees
• Initial care setup costs
• Modifications for aging in place
• Immediate care needs

Combination Approaches

Blend disbursement methods:

• Lump sum for immediate needs
• Monthly payments for ongoing costs
• Remaining credit line for future flexibility

Key Advantages for Care Funding

No monthly mortgage payments means more income available for care costs.

Remain in home with reverse mortgage funding in-home care, avoiding facility placement as long as safely possible.

Non-recourse protection ensures heirs never owe more than home value, even if care costs consume equity substantially.

Spouse protections allow non-borrowing spouses to remain in home even if borrowing spouse requires facility care.

How Does Medicaid Planning Involve Home Equity?

Medicaid covers long-term care but requires spending down assets first:

Medicaid Eligibility Rules

To qualify for Medicaid, individuals must have very limited assets (typically under modest thresholds, varying by state).

Primary residence is often exempt up to certain value limits in some states, but rules are complex and vary.

Spend-Down Strategies

Seniors must “spend down” assets to Medicaid limits before qualifying, potentially including home equity.

Some strategies preserve homes:

• Transfer to spouse (who isn’t applying)
• Certain transfers to disabled children
• Life estate arrangements
• Medicaid-compliant annuities

Reverse Mortgages and Medicaid

Reverse mortgage proceeds are generally not counted as income for Medicaid purposes if spent within the month received.

Strategic use:

• Access equity for care before Medicaid need
• Fund care during spend-down period
• Improve quality of life before facility placement

Complex interaction: Medicaid planning involving reverse mortgages requires professional guidance from elder law attorneys familiar with both.

How Do You Decide Between In-Home Care and Facility Care?

This critical decision impacts both quality of life and costs:

In-Home Care Advantages

• Familiar, comfortable environment
• Maintain independence longer
• Stay connected to community
• Often preferred emotionally
• Potential cost savings for part-time care

In-Home Care Challenges

• Can become more expensive than facilities for 24/7 care
• Home may need expensive modifications
• Isolation risks without social interaction
• Burden on family members
• Safety concerns depending on condition

Facility Care Advantages

• Professional care available 24/7
• Social interaction with peers
• Structured activities and meals
• Safety and security
• Reduced family caregiving burden

Facility Care Challenges

• Expensive ongoing costs
• Loss of independence
• Institutional environment
• Distance from familiar surroundings
• Emotional difficulty of transition

Using Reverse Mortgages for Either Option

Flexibility to choose based on needs and preferences rather than just finances:

• Fund in-home care and aging-in-place modifications
• Cover facility costs if that becomes necessary
• Transition between options as needs change

How Can You Protect a Spouse From Care Cost Impoverishment?

When one spouse needs care, protecting the other matters:

Reverse Mortgage Protections

Non-borrowing spouse provisions allow healthy spouses to remain in homes with reverse mortgages even after the borrowing spouse requires facility care or passes away.

No increased payment obligations when one spouse enters care—reverse mortgage continues with no monthly payments due.

Income and Asset Splitting

Medicaid rules allow “community spouses” (healthy spouses) to retain certain assets and income while the other qualifies for Medicaid.

Strategic planning involves understanding these allowances and maximizing protection for healthy spouses.

Life Estate and Trust Strategies

Advanced planning tools can protect homes and assets, but require professional legal guidance and must be established well before care needs arise.

When Should You Consider Accessing Home Equity for Care?

Timing matters strategically:

Before Care Needs Arise (Ideal)

Establish reverse mortgage while still healthy:

• Easier qualification
• Time for line of credit to grow
• Less stress than applying during crisis
• More strategic planning possible

At Early Signs of Need

When recognizing increasing care needs:

• While still competent to make decisions
• Before crisis forces rushed choices
• Time to research care options
• Can plan transitions thoughtfully

During Care Crisis

Less ideal but still workable:

• May need representatives or power of attorney
• Limited time for planning
• Fewer options available
• Higher stress environment

Earlier planning provides more control, better options, and reduced stress for everyone involved.

How Should Families Discuss Long-Term Care and Home Equity?

Open communication prevents crisis decisions:

Start Conversations Early

Before crisis hits:

• Discuss preferences for care (home versus facility)
• Explore financial resources including home equity
• Involve adult children appropriately
• Document wishes and plans

Topics to Cover

• Current financial situation and resources
• Preferences for care locations and types
• Willingness to use home equity
• Expectations about inheritance versus care funding
• Family members’ abilities to provide care
• Professional care versus family caregiving

Managing Family Dynamics

Different perspectives exist:

• Adult children may have opinions about “their inheritance”
• Siblings may disagree about care approaches
• Spouses may have different priorities

Clear communication about seniors’ right to use their own resources for their own care helps manage expectations and reduce conflict.

How Does Stairway Mortgage Help With Care Financing Planning?

Planning for long-term care funding using home equity requires understanding complex products and coordination with other planning. At Stairway Mortgage, we guide seniors and families:

We explain how reverse mortgages can fund various care options—in-home assistance, assisted living, or nursing care.

We help you understand disbursement strategies matching different care scenarios and timing needs.

We coordinate with elder law attorneys when Medicaid planning intersects with reverse mortgage strategies.

We provide information about spouse protections and how reverse mortgages work when one spouse needs care.

Many families we’ve worked with successfully used home equity to fund quality care, maintaining dignity and independence while preserving financial security for healthy spouses.

Ready to Plan for Long-Term Care Funding?

Long-term care represents one of retirement’s biggest financial risks. Home equity provides a valuable resource many seniors overlook when planning how to fund potential care needs. Understanding options before crisis hits creates security and better outcomes.

Your next steps:

If you want to explore using home equity for potential care needs, schedule a call to discuss strategic planning.

Learn about financing options:

• Reverse mortgage features for care funding
• Review case studies showing successful applications

Remember: Planning early provides more options, less stress, and better outcomes than waiting until crisis forces rushed decisions. Your home equity can fund the care you need while preserving dignity, independence, and security.