Should I Take Out a Loan Against My House to Pay For A Nursing Home?

It is not too unusual for a child to try to cover the cost of a parent's nursing home stay by taking out a home equity loan against the parent's house. Wise move or not?

Let's assume Daughter took out a home equity loan to pay for Mom's long-term care. Unfortunately, what Daughter did not realize is that she is paying more than she needed to, often thousands of dollars more. Why is that?

First of all, assuming the only asset Mom has is the house, she should be able immediately to qualify for Medicaid, because the house is an exempt asset and not counted for Medicaid eligibility purposes. So that means that Daughter could have applied on Mom's behalf and not had to pay a dime out of Mom's pocket (i.e., via the home equity loan) for her nursing home care.

Second, even if nothing is done with the house and it is sold on Mom's death to repay the state for every penny of Medicaid benefits paid to Mom during her nursing home stay (this is required under the "estate recovery" rules), she'd still be way ahead. That's because the state gets a much better deal on nursing home rates than we private citizens do. The so-called "state reimbursement rate" to the nursing home will be much lower than the "private pay rate." So every month Mom's care is paid for by Medicaid, her family is saving money.

It rarely makes sense to borrow against the house to pay for the nursing home. One situation where you might have to do that is when the nursing home you want to use simply does not accept Medicaid (most do, though). In that case, you really have no choice. But for the vast majority of people, they are better off applying for Medicaid and not paying privately, eating up the home equity value.

Is there no other alternative than simply waiting till Mom dies and then repaying the full amount to Medicaid? Indeed there are other possibilities that can save the family even more money. Some of these ideas are discussed in my other articles.

NOTE: During the Medicaid applicant/recipient's lifetime, the house will be exempt so long as the equity is no more than $500,000. If a spouse is living in the house, then there is no limit on value. After the Medicaid recipient is in the nursing home for some time, some states may place a lien on the house to make sure the house will be available to repay Medicaid down the road, but in no case will the house have to be sold until after the death of the Medicaid patient.

K. Gabriel Heiser is an attorney with over 25 years experience in elder law and estate planning. Heiser is the author of “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets,” an annually updated practical guide for the layperson. For more information about this book, visit Medicaid Secrets.

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