Last week in this newsletter, I said that relying on your home to pay for your retirement is a bad plan. But what about using home equity to pay for the latter stage of retirement – the years when you need long-term care?
You could sell your home and use the proceeds to pay for a long-term care home or, if you’re able to live somewhat independently, a retirement home. If you prefer to stay in your family home, it’s possible to tap your equity to cover the considerable costs of home care and retrofitting your house. Another way to turn home equity into funds for home care is a reverse mortgage, where you borrow against your home equity and repay both principal and interest when you sell or die. The interest rates on reverse mortgages are higher than HELOCs at between roughly 6.99 and 9.65 per cent. At these rates, interest can compound quickly on your reverse mortgage and erode the amount you have left after you sell.