Taking equity from your home can help older people stay solvent.
| Credit: (123RF)

Taking equity from your home can help older people stay solvent.(123RF)

Given the choice, most people want to stay in their homes as they age. In one AARP survey, 89% of those 50 and older said they preferred to remain in their own residence, and the older the respondents, the stronger their feelings on the subject.

"The people for whom it is hardest to stay in their house want to stay the most," says Elinor Ginzler, coauthor of Caring for Your Parents and the director of livable communities at AARP, the Washington, D.C.–based lobbying group for older Americans. The good news: It may very well be possible. By carefully thinking through your options before you're in poor health, your home environment can meet your needs for the rest of your life. Here are some suggestions.

Modify your house
Narrow hallways, slippery floors, steps—homes are filled with hazards for an aging person. Research suggests that making modifications and repairs can prevent about a third of home accidents. "Falls are the leading cause of death and disability among older people," says Ginzler. Increase safety with these simple, quick methods.

  • Remove throw rugs to prevent tripping
  • Install motion-sensor lighting to make nighttime trips to the bathroom less perilous
  • Use a no-skid spray on slippery floor surfaces like tiles and linoleum
  • Install grab bars in tubs and on stairs
  • Remove knobs on cupboards and replace them with lever handles, which are easier to grasp

Of course, you may want to make more extensive renovations to your home, such as installing ramps or redesigning kitchens and baths. Think about working with a certified aging-in-place specialist (CAPS), a builder who has been trained by the National Association of Homebuilders to assess the improvements you may need.

Enlist your family
Make sure your family knows you wish to remain in your home as long as possible. You can do that in an advanced care directive, which lays out the type of care you want toward the end of your life. Better to have forthright discussions up front so that you can discuss how your desire to stay at home can be achieved. Adult children may not realize that parents can be safe at home if the right modifications are made.

[ pagebreak ]Consider long-term-care insurance
Paying someone to care for you in your home can be enormously pricey. At an average of $19 an hour, the services of a home health aide can add up to more than $3,000 a month for 9-to-5 care, Monday through Friday. Medicare, the government insurance program for the elderly, and private health insurance usually don't cover long-term care. To get this kind of help in your home, you must either pay for it out-of-pocket or use long-term-care insurance. Policies differ, but long-term-care coverage often kicks in if you are unable to perform at least two activities of daily living—like bathing, dressing, going to the toilet, or feeding yourself—for 90 days. It tends to be most affordable when purchased in middle age, long before most people develop health-related disabilities.

meet your needs for the rest of your life. Here are some suggestions.

"It's really a product that works best for people who think it through early," says Ginzler. "It's rarely appropriate for someone in his 70s, and less appropriate for people who have acute, chronic conditions."

Find the money in your house
If you own your home, a reverse mortgage lets you convert the equity in your home into cash. "Quite often the house is the largest asset people have and it can be a good source of money," says Katana Abbott, a certified financial planner in Commerce, Mich., and the founder of Designated Daughter, a support network for caregivers. Those funds can then be used to hire a home help aide or make renovations.

The more equity you have in your home, the more cash you can borrow. "A reverse mortgage is a good way to pay off what remains of your first or second mortgage, and free up cash to pay for medical expenses," says Barbara L. Steinberg, a certified financial planner and registered financial gerontologist in Lincoln Park, N.J. The loan only comes due if you sell your home, move out, or pass away. In the last case, your heirs can either sell the home or pay off the loan balance themselves—if you owe more than the home is worth, the lender takes the loss.

You must be over the age of 62 to qualify for most reverse mortgages. In general, the older you are and the more your home is worth, the more equity you can access. (The AARP has an easy-to-use reverse mortgage calculator on its website.) For reverse mortgages insured by the Federal Housing Administration, you may borrow up to $362,790 (depending where you live), as long as your home is appraised for more than that amount. You can receive the money in several ways: a lump sum payment, a line of credit, monthly payments, or some combination of all three. Closing costs are subtracted from your remaining equity, so there are few out-of-pocket expenses.

There are a few drawbacks: Fees on a reverse mortgage are higher than on a regular mortgage, so it makes most sense if you intend to stay in your home for several more years. You also will not be able to leave the house unencumbered by debt to your children, which can be a factor if they have an emotional attachment to it.