The National Council on the Aging (NCOA) has published a report showing that reverse mortgages can help an estimated 13.2 million elderly homeowners pay for long-term care, allowing many to remain independent in their homes longer.

Of the 13.2 million eligible households, an estimated 9.8 million currently have an impairment that can make it hard to live at home, according to the study, "Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long-Term Care."

A reverse mortgage is a loan that enables homeowners 62 years or older to borrow against the equity in their home, without having to sell their home, give up title, or take on a new monthly mortgage payment. The loan proceeds, which can be used for any purpose, may be taken out as a lump sum payment, fixed monthly payment, line of credit, or a combination. The loan amount depends on the borrower's age, current interest rates, and the value and location of the home.

State legislators, Medicare directors, regional associations on aging, faith-based groups, and officials from health and human service organizations recently met to discuss the findings.

"Most policymakers had no idea of the potential for reverse mortgages," said Dr. Barbara Stucki, a Bend , Ore. , researcher and the project manager. "The results surprised them mainly because there was a general sense of ignorance about the product."

In total, these households could access as much as $695 billion through reverse mortgages. For individuals, the extra cash could go a long way to help with family caregiving and other long-term care expenses.

For example, a borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage that could pay a family caregiver $500 a month for almost 12 years, $1,120 a month in adult day care services for almost five years, or $2,160 a month in home care (daily care for at least four hours) for 2.5 years.

"The study shows that reverse mortgages have significant potential to help seniors pay for home healthcare services or to make home modifications that make independent living possible," said Peter Bell, president of the National Reverse Mortgage Lenders Association.

The report is the first in a multi-phased project focused on educating policymakers, the healthcare industry, the aging community and others about the potential use of reverse mortgages to help reform America's long-term-care financing policies. It was funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation. Medicare and Medicaid have been seeking potential relief to mounting financial pressures.

"This is an important study that, for the first time, shows that elderly homeowners, many with chronic conditions, can use reverse mortgages to pay for care at home," said Jim Knickman, vice president for research at the Robert Wood Johnson Foundation. "We hope that these findings will prompt new thinking into how the nation addresses the challenge of financing long-term care."  

NCOA projected annual Medicaid cost savings of $3.34 billion nationwide by 2010 assuming four percent of America's eligible seniors used a reverse mortgage to pay for healthcare services, or, if one in four used a reverse mortgage, $4.86 billion would be saved.

A reverse mortgage isn't repaid until the borrower moves out of the home permanently, and the repayment amount can't exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or borrower's estate. A senior's home doesn't have to be owned free and clear to qualify for a reverse mortgage.

The NCOA study shows that while two-thirds (67 percent) of older homeowners today have heard of a reverse mortgage, only 9 percent indicate that they are likely to use this financing option to pay for assistance at home. Many don't understand the program,feel that they risk impoverishment, or that they won't be able to leave a legacy to their children if they tap home equity. The cost of these loans and current Medicaid policies on how reverse mortgages affect eligibility for long-term care benefits are other perceived barriers.

"We need expanded public education and additional work to explore how to reduce the cost of tapping home equity, to strengthen consumer protections, and promote innovation," Stucki said. "Overcoming these obstacles will mean that reverse mortgages can play an important role in helping many older Americans pay for the supportive services they need to continue to live at home safely and comfortably."

Tom Kelly's new book "The New Reverse Mortgage Formula" (John Wiley & Sons, New York ) is available in local bookstores and on amazon.com. He can be reached at news@tomkelly.com .

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