Can Reverse Mortgages Be Used to Finance CCRCs-Without-Walls?

Several senior living communities across the nation have introduced a continuing care retirement community (CCRC)-without-walls model of care, meaning that seniors can remain in their homes and receive the same continuum of care services they’d get had they moved into a traditional community, using a similar contract structure.

While most people entering a traditional CCRC pay the entrance fee using proceeds from their previous home’s sale, this new model keeps seniors in their homes—but still has the entrance fee component, which Stephen Maag, Director of Residential Communities at LeadingAge, found ranged between $20,000 to $70,000 among existing programs in a February 2012 paper on the model. 

This could pose a problem for many seniors on fixed incomes. While AARP studies show about 90% of older adults want to remain in their own homes for as long as possible, two-thirds of Americans fear they won’t have enough money for retirement, and nearly half fear they won’t have enough to pay medical costs for normal healthcare, according to a Gallup poll.

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That’s where reverse mortgages come into play. Using this type of loan to finance the buy-in to a CCRC-without-walls program “could very easily” be the solution to being able to afford the entrance fee, says Dennis Baier, a mortgage broker specializing in reverse mortgages at Chicago-area Wintrust Mortgage Corporation.

Reverse mortgages, which allow homeowners aged 62 or older to tap into their home’s equity, can be used for a variety of reasons: to free up monthly cash flow, pay off an existing mortgage, make repairs to the home, and perhaps above all, allow people to stay comfortably in their homes. Through this type of loan, borrowers are able to get a loan based on their age and their home’s value, among other factors, that can be in the form of a lump sum, monthly payments, a line of credit, of a combination of these options. 

“The whole point of a reverse mortgage is keeping a senior in their home and keep them comfortable and familiar in their surroundings,” says Baier, who’s also a part of a task force committed to helping seniors transition from home into retirement living.

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New model of CCRCs

The CCRC-without-walls program is not exactly a brand-new concept—they’ve been around since the late 1980s. But development has been slow, says Maag, with factors including the economic recession and a lack of understanding of the program.

There are currently about 12 existing CCRC-without-walls programs in various stages of development or implementation, Maag estimates, and at least a few have been around for a number of years. Others, like the program started by Evangelical Homes of Michigan, are more recent and were begun within the past couple years.

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It’s important to distinguish this model from other CCRCs that have programs providing services to seniors in their homes, ranging from home health care to personal care to chore services, Maag points out.

“The important difference is a CCRC without walls program takes the concept of the life care contract and a bundle of services into the home,” he says in February 2012 paper about the model. “A CCRC without walls contract is a comprehensive approach to providing the health and wellness lifestyle to seniors in their homes. It is not just services which can be purchased on as needed basis.”

Reverse mortgages and at-home care

Ultimately, reverse mortgages don’t work for everyone, and they won’t necessarily work with this CCRC model, Baier says. 

“In general, it’s a good idea,” says Norma Coe, associate director for research at the Center for Retirement Research at Boston College. “There is one concern, though, especially when you get to a stage where you need 24-hour care: It’s more expensive to be [providing] it at individual houses.”

The issue is that while a reverse mortgage lump sum may initially help seniors buy into the CCRC model, they might not be able to sustainably afford the monthly fees which may increase as the level of care they need intensifies.

It’s difficult to calculate the premiums for more intensive care, Coe says, adding that it’s “more about the [CCRC] model than whether reverse mortgages are able to pay for it.”

Still, using a reverse mortgage could definitely be an option for those who have high-valued homes, as they have more equity to draw down.

Because most of the CCRC-without-walls programs are relatively new, it’s still unknown how the model will work when people get into the higher (and more expensive) levels of care, and methods for payment vary.

“At Evangelical Homes of Michigan we try to provide a variety of options and solutions to assist clients in managing payment of their entry fee for a LifeChoices membership including various payment plan options,” said Denise Rabidoux, president and CEO of EHM. “To date we have not had a client approach us to discuss reverse mortgage as an option.”

EHM, along with certain other CCRC-without-walls providers, hasn’t yet reached the point where “residents” need skilled nursing, according to Steve Hopkins, the vice president of Wellness and Home-based Solutions at EHM.

But receiving care at home is a “very desirable” commodity, Coe says, and demand for this commodity will likely continue to grow.

Written by Alyssa Gerace

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