In an effort to assist older homeowners in purchasing long-term care insurance policies, Rep. John J. LaFalce (D-NY) has authored legislation that would reduce the cost of financing a U.S. government-insured reverse mortgage while concurrently saving Medicaid funds from being eroded unnecessarily.

As part of the “American Home Ownership and Economic Opportunity Act” (HR 1776), the bill was unanimously passed by the House Banking Subcommittee in February.

According to the National Nursing Home Study published by the AARP in 1996, 48 percent of Americans 65 years of age or older are expected to need skilled nursing facility care at some point. Yet the average cost nationwide of long-term care is almost $50,000 per year.

It is easy to see how many seniors entering nursing homes quickly deplete all their savings. After the savings are gone, the cost of the care is often picked up by the taxpayer through the Medicaid program.

“Long-term care insurance can be an effective way to protect savings built up over a lifetime,” LaFalce said. “Reverse mortgages allow seniors to access the equity in their home to pay the premium, with no monthly principal and interest due on such loans. Using a reverse mortgage to pay for long-term care insurance is a natural fit.”

The Federal Housing Administration's reverse mortgage program enables homeowners age 62 and older the opportunity to turn their locked-up home equity into tax-free income while maintaining ownership and requiring no monthly repayment. Eligibility requirements are quite simple and do not impose any standards based on income, assets, credit or employment.

“Seniors participate in the reverse mortgage program for a variety of reasons,” according to Jeffrey Moulton of Wells Fargo Home Mortgage. “Some choose to pay off their existing mortgages or credit cards, some for home improvements, but more and more are using the loan to pay for long-term care plans.”

By linking the reverse mortgage to long-term care insurance, homeowners can protect their savings against the potentially devastating expense of extended care.