Key Takeaways:
- Canadian families are not receiving enough government funded in-home care for their elderly loved ones
- More spouses and adult children are becoming the primary caregiver at significant emotional and physical costs
- Families can use reverse mortgages to pay for the costs of private in-home personal care services
- The physical and emotional benefits to the entire family typically outweigh the costs of a reverse mortgage
The Unique Canadian Problem
Canadians grow up used to having a publicly funded, universal healthcare system in their lives. For all its faults, the Canadian system generally works and can be depended upon to provide adequate healthcare services when we need it.
Unfortunately, when it comes to in-home personal care for seniors, Canadians are discovering our healthcare system cannot provide the hours of support most families are expecting.
Health Quality Ontario reports that spouses and children are increasingly becoming primary caregivers to make up for this shortfall in support hours provided by the healthcare system. This elder care, reported the agency, comes at significant physical and mental health cost to the spouses and children.
Having spent their whole lives living with the safety net of a health care system, Canadians families are dealing with an unfamiliar and stressful health care situation on their own. Families are left facing difficult questions concerning the care of a loved one:
How can they obtain more in-home personal care for their loved one?
- Should they pay for private in-home care services?
- Do they provide the personal care themselves?
- Should the family move their loved one to a retirement home or a nursing home?
- Do they just accept the limited in-home care the government is providing?
Financial considerations inevitably come into play as the families consider all of their options. Since most Canadians are used to relying on public healthcare, they typically do not purchase private health insurance plans. As a result, caring for a loved one becomes an out-of-pocket expense for them. These expenses can be significant.
Here then is the problem: Everyone wants to provide the best support for their loved one, but what can they do if the cost of private home care is too much? Will someone in the family have to stop working and become a full-time caregiver?
As families seek solutions to fund long-term care and personal care, reverse mortgages have emerged as a potential resource to pay for private personal care services.
In this comprehensive guide, we will explore the benefits, costs, and limitations of reverse mortgages as a way to pay for private in-home personal care services when government support is not enough and a family member cannot manage the caregiver responsibilities themselves.
We’ll also look at reverse mortgage eligibility requirements, application process, and alternatives.
Understanding Reverse Mortgages
A reverse mortgage is a loan that is offered by HomeEquity Bank and Equitable Bank in Canada. These mortgages are different from reverse mortgages in the United States and should not be confused, especially if you have heard any horror stories about reverse mortgages in the past.
Learn More: Are Reverse Mortgages Safe & Legitimate in Canada?
Seniors aged 55 or older are eligible to apply for reverse mortgages, and they can receive payments in various ways, such as a lump sum, monthly installments, or a line of credit. Funds can be used for any purpose.
Learn More: How Does a Reverse Mortgage Work in Canada?
Reverse Mortgage Advantages
- Monthly payments are not required and you only pay interest on funds used
- Homeowners can never owe more than the value of their home
- There are no income requirements or credit requirements to qualify
- The loan does not need to be repaid until the home is sold, the borrower dies or moves out
- Homeowners must receive independent legal advice to make sure they fully understand how the loan works
Learn More: Unlocking the Benefits of a Reverse Mortgage in Canada
Reverse Mortgage Eligibility Requirements
To qualify for a reverse mortgage, certain eligibility requirements must be met:
Borrower Requirements
- All homeowners must be 55 years or older. There are no are no upper age limits. Older borrowers will be eligible to receive larger loans than younger borrowers
- The homeowners are required to maintain the home’s condition, pay all property taxes as they come due and keep the home properly insured
Property Requirements
- The home must be the senior's primary residence
- Any existing mortgages must be paid off by the reverse mortgage
- The home must be worth at least $250,000.
Pros and Cons of Using Reverse Mortgages for Personal Care Costs
Pros
We’ve written before about the general pros and cons of reverse mortgages before let’s examine the pros and cons of using a reverse mortgage to pay for private in-home personal care services:
Access Additional Care Services
A reverse mortgage can provide families with the additional funds, either lump sum or on a monthly basis, to pay for the private in-home personal care services for their loved one.
Home Modifications and Aging in Place
The reverse mortgage funds can also be used to make home accessibility modifications, ensuring seniors can age in place safely and comfortably.
Paying Family Members for Care
In certain situations, if a family member works less (or quits their job) in order to provide personal care for the loved one, the family can use a reverse mortgage to compensate the family member who has taken on this caregiver role.
Cons
Costs and Fees
Reverse mortgages come with slightly higher interest rates than traditional mortgages and home equity lines of credit. They are, however, cheaper than many other forms of credit products such as credit cards, personal loans and private mortgages.
Reverse mortgages also involve initial setup fees, including legal fees and appraisal fees.
Potential for Owing More Than Home Value
Since the balance of a reverse mortgage increases over time, there is a theoretical possibility that the loan balance will become larger than the value of the home.
We say theoretical because if you obtain a reverse mortgage from a major Canadian lender, yuo will receive a “negative equity guarantee” which means you will never owe more than the value of your home.
We also say theoretical because major Canadian reverse mortgage lenders are very conservative in their lending limits and will not approve you for a large loan amount in comparison to the value of the home.
Impact on Inheritance
Reverse mortgages could possibly reduce the amount of inheritance left for heirs, as the loan and interest need to be repaid when the last borrower passes away or moves out.
However, in the Canadian real estate market with its strong increases in home prices every year, we find that most families have more equity after getting a reverse mortgage rather than less equity.
Also, in our opinion, the focus of a family should be on providing the best care for the family member rather than any impact on a future inheritance.
Deciding If a Reverse Mortgage Is Right for You
Choosing to take out a reverse mortgage to pay for in-home personal care services should be a well-informed decision based on your unique circumstances.
Families must carefully assess their financial situation, future care needs, and available alternatives before proceeding.
Consulting with an experienced reverse mortgage advisor or independent financial advisor is highly recommended to explore all options and plan for the future effectively.
The family should see how a reverse mortgage will work over the long term and decide if they are comfortable with the future repayment of the reverse mortgage. A qualified advisor will be able to show these expected changes quite easily.
Application Process and Costs
If you decide to use a reverse mortgage to pay for private in-home care services, the entire reverse mortgage process can typically be completed within 4-6 weeks.
The first step is to decide if you are going to work with a reverse mortgage broker or deal directly with a Bank.
Learn More: Considering a Reverse Mortgage? You Need a Mortgage Broker
Your advisor will help arrange a home appraisal and co-ordinate the entire process with the lender and all lawyers.
You will only be required to pay for the property appraisal out-of-pocket. These reports typically cost $300-500 and the inspection can be completed in less than 2 hours.
All other reverse mortgage fees and costs can be deducted from the reverse mortgage loan proceeds. These typically are $2,000 to $3,000.
If you are using a reverse mortgage broker, their services are paid by the lender.
Learn More: The Guide to Reverse Mortgage Fees & Costs
Understanding Reverse Mortgage Rates in Canada
Overall, if this type of mortgage gives a family the ability to provide in-home care services to a loved one, we do not think the setup fees or the interest rates should stop anyone from doing so.
How You Setup a Reverse Mortgage to Pay for Personal Care Costs
A reverse mortgage can be very flexible to meet your specific needs. If you are going to use it to pay for personal care costs, we suggest you set it up in the following manner:
- Decide how much you need every month to pay for your loved one’s personal care costs. Don’t forget to include any employer taxes you may be paying.
- After you have found this total monthly amount, decide how much of it is going to be paid using a reverse mortgage. Are there any savings or investments that could be used to pay a portion of the monthly amount?
- When applying for your reverse mortgage loan, make sure to request 3-4 months of your monthly costs on closing of the transaction. It’s wise to create a pool of funds for future unexpected expenses.
- Finally, set up your loan so that you receive monthly installments of your monthly costs going forward to avoid unnecessary build-up of interest costs.
Alternatives to Reverse Mortgages
While reverse mortgages can be a useful tool, they might not be the best fit for every situation. Several alternatives exist for those seeking financial resources for personal in-home care services:
Home Equity Line of Credit (HELOC)
Many families are attracted to HELOC’s because they are familiar loan products and come at lower interest rates than reverse mortgages. They also appeal to families since interest is only paid on funds used and can be paid down and used repeatedly (ie. they are “revolving” loans).
HELOCs should be considered but remember, these loans require monthly repayments and minimum income to qualify. They may work for short-term care needs but are not long-term solutions for families unless they have the ability to make regular repayments.
Learn More: The Difference Between Reverse Mortgages & HELOCs
Traditional Mortgages
Similar to HELOCs, most families will start looking at regular mortgage options before they start considering reverse mortgages.
Available for the lowest rates, regular mortgages are not suitable for paying for the personal care costs of a loved one. This is because funds from a regular mortgage are given at once, and the borrower starts paying interest on money that hasn’t been spent yet.
We find most families move away from this option because they need to qualify for any amount they request and will need to make monthly repayments on the loan.
Learn More: Reverse Mortgage vs. Refinance Mortgages
Conclusion
Families have tough decisions to make when it comes to the personal care of a loved one. There are financial, physical and mental costs that must be considered.
Rather than taking on the huge responsibility of becoming a primary caregiver, families should strongly consider paying for private in-home care services.
Reverse mortgages can be a valuable resource for seniors seeking to fund personal care, home modifications, or long-term care insurance. However, they do come with costs and implications that must be carefully considered.
Before making any decisions, individuals and families should conduct thorough research, seek professional advice, and explore alternative options to ensure the chosen financial solution aligns with their specific needs and long-term goals.
By taking a well-informed and thoughtful approach, a family can enhance the quality of life for a loved one and enjoy their golden years with them.
FAQs
- Will a reverse mortgage affect my eligibility to receive personal care support from the provincial health care system?
A reverse mortgage will not affect your eligibility to receive personal care support from your provincial health care system. Money from a reverse mortgage is not income so it will not affect your eligibility for any government programs.
- Can I use a reverse mortgage to pay for the cost of a long term care home instead of in-home care?
You can use a reverse mortgage to pay for the cost of a long term care home as long as the remaining homeowners on title are eligible to receive a reverse mortgage. The reverse loan amount will be determined by the ages of the owners living in the home, not the age of the person moving into the long-term care home.
