How reverse mortgage funds can cover care costs

A reverse mortgage converts home equity into cash you can use for any purpose, including care expenses. Unlike a traditional mortgage, you do not make monthly payments—instead, the loan balance grows over time and is repaid when you sell the home, move out permanently, or pass away. If you need to pay for in-home care, assisted living, or nursing home costs, the lump sum, monthly payments, or line of credit from a reverse mortgage can cover those bills.

The amount available depends on your age, home value, and current interest rates. The older you are and the more your home is worth, the more you can borrow. You keep the title to your home and can stay there as long as you wish, as long as you pay property taxes, homeowners insurance, and maintenance costs.

Key Takeaways

  • Reverse mortgage funds can pay for in-home care, assisted living, or nursing home costs without requiring monthly repayment while you live in the home.
  • You receive money as a lump sum, monthly payments, or a line of credit you draw from as needed—choose the option that matches your care timeline.
  • The loan balance grows over time and is repaid from home sale proceeds or your estate when you no longer live in the home.
  • You must be at least 62 years old, own your home outright or have a small mortgage balance, and live in the home as your primary residence.
  • Upfront costs include an origination fee, appraisal, title insurance, and mortgage insurance, which reduce the amount you can borrow.

Choosing how to receive your reverse mortgage funds

You have three main options for how to access the money. A lump sum gives you all available funds at closing—useful if you need to pay for when ready care or a move to assisted living. A monthly payment option provides a fixed amount each month for as long as you live in the home, which works well if you have predictable ongoing care costs. A line of credit lets you draw money as you need it, paying interest only on what you withdraw—this is often the best choice if you are unsure when or how much care you will need.

Many people choose the line of credit because it preserves flexibility. If you do not need care for several years, you do not pay interest on unused funds. When care becomes necessary, you can draw what you need. The line of credit grows over time, so the amount available to you increases even if you never touch it.

Real costs that reduce the money available to you

Reverse mortgages have upfront costs that come out of your loan proceeds. An origination fee typically ranges from 0.5% to 2.5% of your home value. You also pay for an appraisal (usually $300 to $500), title insurance, property survey if needed, and mortgage insurance, which protects the lender if the home value drops below what you owe. These costs vary by lender and location.

Interest rates on reverse mortgages are typically higher than traditional mortgages. You pay interest on the outstanding balance, which compounds over time. If you borrow $200,000 at 7% interest and never make a payment, the balance grows to roughly $214,000 after one year, $229,000 after two years, and so on. This matters because the larger the balance when you sell or pass away, the less equity remains for your heirs.

Before taking out a reverse mortgage, ask the lender for a detailed estimate showing all fees, the interest rate, and how much you will actually receive after costs are deducted. Compare estimates from at least two lenders.

When a reverse mortgage makes sense for care expenses

A reverse mortgage works best if you plan to stay in your home for several more years and need significant care funding. If you own a home worth $300,000 or more and have little or no mortgage debt, you likely have enough equity to make it worthwhile. The longer you stay in the home, the more sense the upfront costs become.

A reverse mortgage is less useful if you may move or enter a nursing home within a year or two. Once you move out permanently or enter a facility for more than 12 consecutive months, the loan becomes due. If you are considering a move to assisted living or a nursing home soon, the upfront costs may outweigh the benefit.

It also makes less sense if your home is worth less than $200,000 or you still owe a large amount on a traditional mortgage. The funds available will be small, and closing costs will eat up a bigger share of what you receive.

How the loan is repaid and what happens to your home

You do not make monthly payments on a reverse mortgage while you live in the home. The loan is repaid when you sell the home, move out permanently, or pass away. At that point, the lender is paid from the sale proceeds or from your estate. If the home sells for more than you owe, your heirs receive the difference. If the home sells for less than the loan balance, the lender absorbs the loss—you and your heirs owe nothing more.

You must continue to pay property taxes, homeowners insurance, and maintenance costs. If you fail to pay taxes or insurance, or if the home falls into serious disrepair, the lender can call the loan due. This is why a reverse mortgage works only if you can afford to keep the home in good condition and stay current on taxes and insurance.

If you have a spouse or partner, discuss the reverse mortgage carefully. If you pass away first, your surviving spouse may have the right to stay in the home, but the loan terms depend on how you set it up. Some reverse mortgages allow a surviving spouse to remain in the home without repaying the loan when ready, while others do not. Ask the lender about spousal protections before you sign.

Alternatives to consider before borrowing against your home

A reverse mortgage is not the only way to fund care. If you have other assets—savings, stocks, bonds, or a life insurance policy—using those first preserves your home equity for emergencies or to leave to heirs. Some people use a home equity line of credit (HELOC) or a home equity loan instead, which typically have lower interest rates and fees than a reverse mortgage, though they require monthly payments.

You may also be able to reduce care costs through Medicaid, which covers nursing home care and some in-home services for people with limited income and assets. Medicare covers skilled nursing care for a limited time after a hospital stay. Veterans and their spouses may be may have access to to Aid and Attendance benefits, which help pay for care. A social worker or elder law attorney can help you explore these options before you take on debt.

If you need care soon but want to keep your home, you might also consider downsizing to a smaller, less expensive home and using the sale proceeds to fund care while you still own a home outright.

Questions to ask a reverse mortgage lender

Before you meet with a lender, know what to ask. Request a detailed Loan Estimate that shows all fees, the interest rate, the amount you will receive after costs, and how the balance will grow over time. Ask whether the interest rate is fixed or adjustable—fixed rates are usually higher but do not change, while adjustable rates start lower but can rise. Ask about the lender's reputation: check reviews on the Consumer Financial Protection Bureau website and the Better Business Bureau.

Ask whether the lender offers a line of credit option and how that line grows over time. Ask what happens if you need to move to a nursing home or assisted living—will the loan become due when ready, or do you have a grace period? Ask about spousal protections if you are married. Finally, ask whether the lender requires you to meet with a counselor before closing. (Most do, and it is a good safeguard.)

Frequently Asked Questions

Can I use a reverse mortgage if I still owe money on a regular mortgage?

Yes, but the reverse mortgage lender will require you to pay off the existing mortgage first, using proceeds from the reverse mortgage. This reduces the amount available to you for care expenses. If you owe $100,000 on a traditional mortgage and the reverse mortgage provides $250,000, you will have roughly $150,000 left after paying off the old loan.

What happens to my reverse mortgage if I move to assisted living?

If you move out of the home permanently, the loan becomes due. You have a grace period—usually 12 months—to sell the home or arrange repayment. If you move to assisted living but plan to return home, the loan may not be triggered when ready, but you should confirm this with your lender before moving.

Can my heirs keep the home after I pass away?

Your heirs can keep the home if they repay the loan balance, usually by refinancing or selling the home. If the home is worth more than the loan balance, they keep the difference. If the home is worth less, they can walk away without owing anything—the lender absorbs the loss.

Do I need to pay taxes on reverse mortgage funds?

No. Reverse mortgage proceeds are a loan, not income, so they are not taxable. However, the interest you pay may be deductible if you itemize deductions on your tax return. Consult a tax professional about your specific situation.

What if I cannot afford property taxes or insurance after taking out a reverse mortgage?

If you fall behind on property taxes, homeowners insurance, or home maintenance, the lender can declare the loan due and demand repayment. This is why a reverse mortgage works only if you have enough income or assets to cover these ongoing costs for as long as you live in the home.