Should I (or my Mom) take out a loan against the house to pay for a nursing home?
No, it generally is not advisable that a loan be taken out against one’s home to pay for nursing home care.
Persons with limited income and assets, should instead, apply for Medicaid. Medicaid will pay 100% of nursing home care as long as eligibility criteria is met. While the income and asset limit varies based on the state, in 2022, the income limit is commonly $2,523 / month and the asset limit is $2,000. See state-specific limits.
One’s home is usually not counted towards Medicaid’s asset limit; it is exempt. Therefore, one can keep their home and still be asset-eligible. For home exemption, the Medicaid applicant (the nursing home resident) must have a spouse, minor child, or blind or disabled child of any age that lives in the home. If none of these relatives live there, the nursing home resident must have intent to return home, and their home equity interest must be under a state-specified value. In 2022, this amount falls between $636,000 and $955,000.
It is important to mention that following the death of the Medicaid recipient, Medicaid will attempt to recover the funds for which it paid for nursing home care. This is through the Medicaid estate recovery program (MERP), and in most cases, it is through one’s home that the Medicaid agency is reimbursed. However, the Medicaid-funded rate for nursing home care is significantly lower than the private pay rate. This means even with Medicaid estate recovery, and repayment of long-term care costs, a significant amount of money is saved each month. If one plans in advance, there are planning strategies that can be implemented to protect one’s home from MERP. Learn more.
In limited cases, it might make sense for one to take out a home loan (or a personal loan) to pay for nursing home care. For example, if the nursing home is not Medicaid-certified, and therefore, does not accept Medicaid as payment. Most nursing homes, however, do accept Medicaid, and persons can move to a nursing home that accepts Medicaid. Another situation in which one might take out a home loan is if they are receiving Medicare-funded short-term skilled nursing care and need to cover the cost of Medicare’s daily coinsurance fee of $194.50 (in 2022) for days 20-100 of coverage. However, if one is eligible for Medicaid, Medicaid will cover this cost.
When one takes out a home loan, they are borrowing against their home equity. This is the home’s market value minus any remaining mortgage debt. Persons might choose a home equity loan, which is a one-time loan, or a home equity line of credit (HELOC), which allows them to continue to borrow funds up to a specified amount. With these loans, the borrower does not have to live in the home, which makes them ideal for single nursing home residents. Monthly payments are required.
A reverse mortgage, also called a home equity conversion mortgage (HECM), is a special type of home loan option for persons aged 62 and older. Monthly payments are not required, but a borrower, such as a spouse, must live in the home. This means this type of loan is not feasible for single nursing home residents, as the loan becomes due when the borrower moves from the home.
Learn more about nursing home Medicaid.