Reverse mortgage line of credit could fund long-term care

There is a 70 percent chance that people over 65 will need some kind of long-term care, including services such as home care, assisted living and skilled nursing, according to government statistics.

There are lots of ways to pay for long-term care services, including Medicare, Medicaid, traditional health insurance, long-term care insurance, life insurance and annuities. Some people may have access to funding via the Older Americans Act and the Department of Veterans Affairs.

There is an additional option worth exploring: a reverse mortgage line of credit, in which you can withdraw cash from the equity you have built up in your home.

Most reverse mortgages involve a lump sum for an immediate need or a string of payments over time to use a certain percentage of home equity to fund a need. Because reverse mortgages are generally used by older people whose homes are paid off or nearly paid off, long-term care is one natural use of the funds.

Since 1989, the U.S. Department of Housing and Urban Development has worked with private lenders to administer what are officially called home equity conversion mortgages, commonly called reverse mortgages. Several modifications over the years have added more features and programs.

One of the options under this program is a reverse mortgage line of credit that increases in value each year as long as the owner doesn't use it.

A reverse mortgage line of credit holds some advantages over a home equity line of credit (HELOC), a similar concept. With a HELOC, the borrower must begin making monthly payments immediately. With a reverse mortgage line of credit, the borrower doesn't have to make monthly payments at all.

And, the available funds in this type of line of credit grow over time, while HELOCs typically provide a fixed amount that the borrower can draw against and that the lender could freeze at any time to preclude further borrowing.

You can think of this type of reverse mortgage as an old-age insurance vehicle, though it's really not insurance.

Several vendors are offering this program for as little as $125 in total out-of-pocket cost, which is dramatically cheaper than previous versions that included thousands of dollars in costs and fees. That means lenders are being competitive for placing this product, just like credit card companies offering zero-percent balance transfers.

You can find lenders in your state using the HUD website.

Jim Ludwick, founder of MainStreet Financial Planning, wrote this for NerdWallet.