Can You Use Your Home Equity To Pay For Long-Term Senior Care?

*This post was created in collaboration with Alpine Credits

In the last 5 years alone, Canada’s senior population (those aged 65 and older) grew by nearly 1 million. As of 2023, the number of persons aged 65 and over totalled roughly 7.5 million, up from around 6.5 million in 2019.

Along with an aging population comes the growing need for senior care and appropriate housing. According to the Canadian Medical Association (CMA), the demand and cost for elder care in Canada will nearly double within the next decade. Given this, it’s important for seniors and their families to start making arrangements for long-term care well before it’s required.

While some seniors have enough savings or a pension to cover such costs, others may look into alternative ways of financing their long-term care, including using their home equity.

Can You Use Your Home Equity To Pay For Long-Term Senior Care?

If you own a home and have built up enough equity, you may be able to tap into that equity to cover the cost of long-term senior care. There are several ways to access your home equity for this purpose, each offering different benefits and drawbacks. 

Depending on the specific financing option you choose, you may be able to access up to 80% of your home’s equity. The funds can then be used for various senior care options including home care, nursing homes, or assisted living facilities. You can also use the funds to renovate your home to make it more accessible for you. 

What Types Of Home Equity Loans Are Available To Pay For Long-Term Senior Care?

If you’re looking to access your home equity to cover the cost of long-term senior care, the following financing options are available:

HELOC

A home equity line of credit (HELOC) allows you to borrow against the equity in your home, up to a specific limit. With this revolving financial product, you can borrow from your credit line as often as required, and interest is only charged on the withdrawn amount rather than the full credit limit.

Pros

HELOCs offer the following perks:

• Large Loan Amounts Available. Since you’re borrowing from your home equity, you may have access to a substantial amount of money. This can come in handy when it comes to making renovations on your home to accommodate an aging family member, or to cover the cost of long-term care accommodations.
• Interest-Only Payments. HELOCs have a draw and repayment period. During the draw period (up to 10 years), you’re only required to pay interest on the amount you withdraw. After that, the loan (including the principal) can be spread over the repayment period, which can be up to 20 years.
• Flexible Financing Solution. A HELOC can provide you with a flexible solution to pay for long-term care over time. You’ll have a set credit limit that you can borrow against whenever you need extra money. As long as that credit is available, you can withdraw from it as required.

Cons

The following are considerations to make before taking out a HELOC:

• You Could Lose Your Home. Since your home serves as collateral on a HELOC, you could risk losing your home if you miss payments.
• Potential For Decreased Home Equity. When you tap into your equity with a HELOC, you’re reducing the amount of equity in your home. This could limit future opportunities to borrow, since it reduces your overall net worth. Plus, it can reduce the inheritance for your heirs.
• May Be Difficult To Qualify For. If you’re a senior who’s retired and on a fixed income, you may find it more difficult to get approved. It’s generally best to apply before you retire. That said, some lenders, like Alpine Credits, may not be so stringent with their loan qualifications and may approve you based solely on your home equity.
• Additional Loan Payment. If you’re on a tight budget, you may find it more difficult to manage an additional bill payment. Fortunately, you won’t have to worry about having to make monthly payments that include principal, as this is only required during the repayment period after years of enjoying an interest-only draw period.

Home Equity Loan

Like a HELOC, a home equity loan is based on the value of your home’s equity. However, a home equity loan provides you with a lump sum of money that you would then be required to pay back in regular installment payments, much like a typical loan. 

Pros

There are several reasons why a home equity loan may be worth considering if you need extra cash to fund long-term care:

• Large Lump Sum Payment. A home equity loan allows you to access a large sum of money upfront, which can be very useful to fund pricey expenses, like home renovations and long-term care costs.
• Lower Interest Rates. Since a home equity loan is secured by your home, interest rates are typically lower compared to unsecured loans.
• Fixed Interest Rates. Home equity loans typically come with fixed interest rates, which means more predictable monthly payments and easier budgeting compared to HELOCs with variable rates.
• Long Repayment Terms. With a home equity loan, you can choose a long repayment period (5 – 30 years), which gives you plenty of time to repay what you owe and keep your monthly payments low.

Cons

Along with the benefits of a home equity loan are some potential drawbacks to consider:

• Requires full monthly payments. Unlike a HELOC that only requires interest-only payments on the withdrawn funds during the draw period, a home equity loan requires full monthly payments over the duration of the loan. These payments include both interest and principal.
• You Could Lose Your Home. Missing loan payments could lead to foreclosure or power of sale, since your home collateralizes the loan.
• Long-Term Commitment. Depending on the loan term you choose, you could be stuck with your home equity loan for a very long time, which can be hard on your budget.

Reverse Mortgage 

A reverse mortgage also allows you to borrow against your home’s equity(up to 55% of your home value) and is available to homeowners aged 55 years or older. This unique type of financing does not require monthly payments as long as you remain in the home. Repayment is only required if you move out, sell the home, or pass away.  

Pros

Reverse mortgages offer unique advantages compared to other loan types:

• No Monthly Payments. Unlike traditional mortgages or installment loans, reverse mortgages do not require monthly payments, as long as you remain in your home.
• Retain Homeownership. You can continue to live in and own your home, allowing you to stay in a familiar environment in your Golden Years while accessing the equity in your home.
• Steady Stream Of Income. The equity you can access in your home can be used to help keep up with bills, including long-term care costs, without having to make monthly payments.
• Flexible Payouts. Your lender may offer various options in terms of how and when you receive the money. For instance, you may access the funds in one lump sum, in monthly payments, or as a credit line.

Cons

While there are advantages of reverse mortgages, there are also some disadvantages that should be considered:

• Home Must Be Maintained. As the homeowner, you’re still responsible for paying the property taxes, home insurance, and maintenance. If you don’t, this could cause legal complications, including possible foreclosure.
• Reduced Home Equity. Taking money out of your home equity through a reverse mortgage will reduce the amount of equity you have in your home, as is the case with all home equity financing products.
• Interest Still Accrues. Interest on a reverse mortgage will continue to accumulate over time, which can cause your loan balance to increase significantly.
• Less Equity Remaining For Your Heirs. A reverse mortgage is repaid when the home is sold. If you’ve depleted much of the equity through a reverse mortgage, there may be little left for your heirs once you pass away.

How To Lower Your Senior Care Costs

While tapping into your home equity provides one way to cover your senior care costs, including long-term care accommodations, there are other alternatives you may wish to explore to keep these costs low:

Downsize 

Selling your home and moving into a smaller, more affordable home can help slash housing costs. If you still wish to use equity to pay for senior care, you’ll have more available to you.  

Share Living Expenses

Moving into a co-living home with other seniors or moving in with extended family can cut down on housing and senior care costs. Combining resources to share the cost of in-home care or to make modifications to the home to make it more accessible can also reduce your individual costs.

Compare Costs Of Home Care Vs Assisted Living

Depending on your needs, the cost of home care may be cheaper or more expensive than assisted living facilities. If you need care around the clock, perhaps assisted living facilities may be cheaper than paying someone an hourly rate to care for you most of the day. On the other hand, if you only need to be checked on a couple of hours per day, perhaps home care may be more affordable. 

Crunch the numbers to see what makes more financial sense. For instance, the average home care service fees in Canada range from $45 to $70 or more per hour. If you needed at least 8 hours of care per day, for example, this would translate to up to $560 per day at the upper level. This would work out to nearly $17,000 per month. 

On the other hand, the average cost of assisted living in Canada is $2,043 per month. In this case, assisted living would be the more affordable option. 

Are There Any Government Financial Aid Programs For Senior Care In Canada?

In addition to the alternative options just mentioned, there are also government programs available that provide eligible seniors with financial assistance. You can do a quick check on www.211.ca to find local programs where you live. Simply enter your location to find available resources near you.

Most provinces also offer financial aid to seniors, such as the following:

Ontario 

The Long-Term Care Rate Reduction Program in Ontario helps low-income residents of the province pay for basic accommodations. The rate reduction amount you receive depends on your income and whether you’re also supporting dependents. Current long-term care home maximum co-payment fees in Ontario range from $2,036.40 for long-stay basic accommodations to $2,909.36 for long-stay private rooms.

Your reduced monthly rate is calculated by dividing your annual net income by 12, then deducting comfort allowance and dependent deductions, if applicable.

Quebec 

The Tax Credit for Home-Support Services for Seniors in Quebec is available to eligible seniors who own a home, rent a home, or live with a family member. The program provides tax assistance to cover the cost of certain home-support services. Participants must be over 70 years of age and have been a Quebec resident as of December 31, 2023.

The tax credit is calculated at 37% of your eligible expenses. 

Alberta 

The Supplementary Accommodation Benefit in Alberta provides financial assistance to eligible low-income seniors who live in a continuing care home. The benefit amount is based on the following:

Your personal income combined with your spouse/partner’s income 

Alberta Health’s maximum monthly accommodation charge for accommodations in a continuing care home

The monthly disposable income amount (minimum $357) 

BC 

Publicly subsidized long-term care services are available to eligible seniors in BC. The monthly cost for such accommodations is up to 80% of your net income, subject to a minimum and maximum rate per month.

The minimum monthly rate is modified every year based on changes to the rate associated with Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). For 2024, the minimum monthly rate for long-term care services is $1,417.

Other Government Programs For Seniors 

Additional Reading

Senior Financial Abuse: How To Protect Yourself

Do You Qualify For The New Canadian Dental Care Plan (CDCP)?

The Financial Implications Of Your Elderly Parents Living With You And Paying Rent

Bottom Line

Covering the cost of housing can be a tall order, particularly after you’ve retired and are no longer earning a working income. Plus, there may also be additional costs required as an older person, including medical devices, medical care, and specialized accommodations. Such costs can be too much for many low-income seniors in Canada. 

Fortunately, you may be able to use the equity in your home to help make modifications to your home to make it more accessible, or to subsidize the cost of long-term care facilities. Alpine Credits can help facilitate access to your home equity so you can continue to live comfortably throughout your twilight years.

Home Equity And Long Term Senior Care FAQs