When it comes to financing senior care, there are many options. Depending on your personal circumstances, one type of senior care might be more affordable than another. If you own a home and have a significant amount of equity in it, taking out a home equity line of credit (HELOC) and using that money to pay for senior care (in place of a traditional loan) might make financial sense. Alternatively, if you have the income and credit history needed to qualify for a home equity loan, you might be able to get a lower interest rate than you would with a traditional loan. If you own an older home without a lot of equity, you may not be able to take out a home equity loan even if you have excellent credit. In this case, another source of funds may be a reverse mortgage. A reverse mortgage is a loan taken out against your home that is not repaid until you move out of it. The amount you receive is not determined by your credit history or financial capacity but by the current market value of your home.
Home Equity Loan
A home equity loan is essentially a loan against your home’s value that you use to pay for expenses like tuition, car repairs, or home repairs and renovations. You can take out a home equity loan for whatever amount you need and repay it over a set period of time with interest. Depending on your interest rate and the amount of money you borrow, the cost of the loan can be higher or lower than a traditional loan. You can apply for a home equity loan in the same way you would apply for a car loan or personal loan. You’ll just need to prove that you own the home, have enough income to cover the payments, and have a good credit history.
HELOC
A home equity loan is a lump-sum loan that you use to pay for a specific expense. A Home Equity Line of Credit (HELOC) is a revolving line of credit that you can use to fund expenses throughout the year. With a home equity line of credit, you can borrow up to a certain amount based on your credit score and your lender’s terms. You can also use an existing home equity line of credit to help fund a new expense — like tuition or home repairs — without having to take out another loan.
Down Payment Loan
A down payment loan is a type of loan that requires you to make a large up-front payment in order to receive a smaller monthly payment for the life of the loan. The loan is repaid with the difference between the loan amount and the amount required to cover the monthly payments. For example, you take out a $10,000 loan to cover your daughter’s tuition and books. You make a down payment of $5,000, and the rest of the $10,000 is added to your daughter’s student loan balance. You make a monthly payment for the rest of the loan, including the $5,000 you paid as a down payment. When you make your final payment, the rest of the loan is written off.
Reverse Mortgage
A reverse mortgage is a loan that allows you to access the value of your home without giving up ownership. In exchange for an up-front, lump-sum payment called a “settlement fee,” the lender gives you a monthly income for as long as you live in the house.You do not have to repay the loan until you move out of the house, and the amount you receive is based on the current market value of your home. You can use the money to cover medical bills, pay for long-term care, or fund a college education.
Summing up
Finding the right source of financing for senior care is important, but it’s also important to understand the differences between each option before making a decision. If you own a home, you might be able to get a lower interest rate on a home equity loan than you would on a traditional loan. A reverse mortgage is another option for those who own a home, but it only works if you are above a certain age.