Getting financial help for care is difficult but possible

 

Leveraging assets like your home is one option, but proceed carefully.

Owning a home can help

For most people, their home is the largest source of unused funds. The average homeowner between the ages of 55 and 64 had a home equity of $133,000 in 2018, according to the most recently available data from the US Census Bureau. Those over 65 had an average equity of $174,000.

If the only real option for a loved one receiving care is an assisted living or nursing home, then selling the home is an ideal way to raise money. Someone who needs extra money to pay for home care could buy a smaller, less expensive house or condo and use the proceeds to pay for additional medical expenses.

In many cases, proceeds from the sale of a primary residence—a home you've owned and lived in for at least two years—are tax-free. There is no capital gains tax on up to $250,000 of gains from a home sale for a single homeowner and up to $500,000 for a married couple.

However, many people don't want to leave their long-term homes, especially if it means leaving close friends and family as well. Those people have three other options, though none are entirely satisfactory:  a home equity loan , a home equity  line of credit, and a reverse mortgage .

A home equity loan is a lump-sum loan secured by the paid-up portion of the home, the amount left over after the mortgage balance is subtracted.

A HELOC (Home Equity Line of Credit)  is a preset amount of money that your home's equity secures. The borrower can avail it regularly, like a credit card.

In either case, the owner will need an appraisal of the property to determine how much it is possible to borrow. He will also need a good credit score, ideally above 700, as well as proof of ability to repay the loan.

If the monthly payments are not made, you may lose the property.

Interest rates on home equity loans and lines of credit are relatively low. The average rate on such loans in October 2021 was 5.94%, and on home equity lines of credit (HELOCs) averaged 3.88%, according to Bankrate.

A homeowner can lock in a fixed rate with a home equity loan, which can be a wise move in today's low-interest-rate environment, says financial planner Ray Ferrara of Clearwater, Florida. HELOCs typically have higher, adjustable rates.

A reverse mortgage can also give a person the ability to obtain payments based on the equity in the home. The federal government insures the program, called HECM (home equity conversion mortgage), for homeowners age 62 and older who own their homes outright or have very little mortgage left.

A borrower has to live in the house as his primary residence.

The borrower can live in the home until they move or die, and a younger co-borrower, such as their spouse, can stay in the home until they die or move. If any equity remains after the loan has been paid off, the borrower or the borrower's heirs may keep it.

Fees and interest payments will increase costs, and the longer the homeowner has the loan reversed, the more of the home equity will be used.

The homeowner must visit a Government-approved HECM counselor to help decide if a reverse mortgage is the best option, and must use an FHA-approved lender for the program. The amount a homeowner can borrow depends on the homeowner's age, current interest rates, and the value of the home.

Pharmaceutical companies can offer help

Reducing medical expenses is another way to help the person you care for.

Pharmaceutical company PAPs (Patient Assistance Programs) can help a loved one obtain medications and other medical care at low cost. Those who qualify generally have to be US citizens without prescription drug coverage and also have to meet certain income guidelines.

RxAssist.org  offers a free PAP database, and MyHealthFinder  , a site operated by the US Department of Health and Human Services, also offers information about the programs.

HHS also oversees the Administration for Community Living  , where patients and caregivers can find information about free or low-cost help in their area. For example, the administration's website, which provides objective information and advice for people of all income levels, will help you find resource centers for older adults and people with disabilities in your area.

It can also help caregivers and their loved ones find adult day care centers, senior centers, and transportation services in the area.

Sometimes the best help is at hand. It may take a whole village to raise a child, but it also takes one to care for the elderly and the sick.

"These are situations where people often have to rely on family and children to help," says financial planner Stephen Janachowski of Mill Valley, California.

Editor's Note: This article, originally published on October 21, 2019, has been updated with the latest data on nursing home costs, median home equity for senior homeowners, and median loan rates on the equity of homes and HELOCs. 

John Waggoner has been a personal finance writer since 1983. He was a USA TODAY mutual fund columnist from 1989 to 2015 and has worked for InvestmentNews ,  Kiplinger's Personal Finance, the Wall Street Journal  , and Morningstar.

Do you need cash now? Be careful

You may have seen advertisements online and on TV that promise to turn assets into quick cash, or stores touting instant loans. These can be tempting options as care costs rise, but be wary: they can be expensive and have long-term financial implications for you and your family.

1. Overcharging—or receiving a cash advance—on credit cards. The average interest rate on the cards is more than 17% if the balance is not paid in full each month.
2. Get a car title loan. Advertised as "fast money," these loans generally must be paid in full plus interest within 30 days, and interest rates can be as low as 300% per year. If the loans are not paid in full, the lender can take the vehicle from you and sell it.
3. Find a payday loan. Widely available online and in retail stores, payday loans are easy to get but hard to pay off, with sky-high annual interest rates and late fees that can trap borrowers in a cycle of debt.
4. Request a loan from a pawn shop. Not only will you face high interest rates often for a fraction of the actual value of the item, but some stores charge insurance and storage fees to store valuables. After several months, that can potentially increase the debt to more than the item is worth.
5. Using brokers that promise extremely high returns. High returns mean high risks, and any adviser who promises high guaranteed returns is a scammer. Pro Tip:  Be wary of seminars that offer free lunch or dinner  . Check any advisor's registration through your state's securities administrator and the  Financial Industry Regulatory Authority's BrokerCheck program  .
6. Provide full life insurance. While whole life policies can be a good source of emergency income, surrendering the policy means that the heirs will not receive any benefits when the insured dies. Ask your agent if you can make limited withdrawals or borrow against the policy instead.
7. Withdraw from an annuity. Typically, fees and taxes make withdrawing from an annuity a poor decision. The person entitled to regular payments from an annuity can sell those payments to a factoring company, such as JG Wentworth, who will keep a percentage called the "effective discount rate," which can range from 9 to 15% or plus.