Growing Number of Seniors Rely on Reverse Mortgages to Finance Home Care

Seniors are living longer than ever before — and that often comes with a higher price tag for which many people are unprepared.

Home care remains among the least expensive and most preferred option for the older population. Still, a growing number of seniors are struggling to pay for it.

While states such as Washington looked to long-term tax programs to help offset the problem, many aging Americans are beginning to eye reverse mortgages as a way to finance aging in place, according to loan officers.

Homeowners 62 or older who have considerable home equity can take out reverse mortgages, borrowing against the value of their home for a lump sum of money, fixed monthly payment or line of credit with no loan payments required.

Reverse mortgage insiders say the long-term care trend is somewhat new, yet becoming increasingly more prevalent.

“I would say that funding in-home care is a top-five reason our clients are looking for a reverse mortgage,” Jennifer Cosentini — housing director at Cambridge Credit Counseling Corp. in Agawam, Massachusetts — told Home Health Care News’ sister publication Reverse Mortgage Daily. “In most of these cases, we are speaking with a family member who has power of attorney or a conservator who is paying the bills and wants to keep the client in the home as long as possible.”

Given the cost, it’s no surprise a growing number of seniors are turning to their houses for help paying for staying in them.

The average national monthly cost of in-home care hovers around $4,004 per month for 44 hours of care per week, according to the most recent Genworth Cost of Care Survey. That’s more than $40,000 per year, with seniors living older than ever before.

“There’s no getting around it — it’s being driven by the demographics,” Stephen Resch — vice president of retirement strategies at Finance of America Reverse (FAR) — told RMD. “When you start rolling into your 60s, all of a sudden the lights go on and [you can] say, ‘I’m in my later years. I need to plan for all sorts of things.’”

More seniors are reaching that age than ever before, as 10,000 baby boomers are turning 65 every day.

On top of that, the average life expectancy in the U.S. is about 79, more than seven years longer than the average life expectancy was in 1980, according to the CDC.

To compound the problem further, the caregiver crisis continues to get worse. In 2018, turnover in the home care industry reached an all-time high of 82%.

Amid the increasing demand for home care, many worry the shortage could drive the cost of care even higher in the future.

By 2028, the Genworth Cost of Care Survey estimates the average cost of home care will increase by more than $1,000 per month to $5,381.

“That trend could become even worse if home care agencies have to pay higher wages because they simply can’t attract the workers they need at the current wages,” researcher Richard Johnson — who is a senior fellow at the Urban Institute’s Income and Benefits Policy Center — previously told HHCN. “The only way they can do that is by raising wages [or] by offering more training — [but] that’s expensive. And immigration plays a big role, too.”

In other words, all signs point to reverse mortgages growing as a way to pay for long-term care, industry insiders say.

“I believe that this issue will grow in importance over the next few years as seniors recognize this shortfall [of their retirement planning], and the fact that a home equity conversion mortgage (HECM) grows at an annual rate better than almost all investments [means] it makes sense to get a line of credit now and let it grow for the future,” Rich Pinnell, an originator with Guild Mortgage in Redding, California, told RMD. “I’m spending a lot of time discussing this with my referral partners.”

Brandi Braley — reverse mortgage originator with Neighborhood Mortgage in Bellingham, Washington — agrees.

“I have only talked to people about using the funds for long-term health care specifically a few times. The only times I have done it is when they specifically say that is what they are intending to use it for,” Braley said. “I should probably add this as a key point when talking to borrowers [going forward].”

Additional reporting by Bailey Bryant