Helping a parent transition from independent living to professionally assisted care can take a toll, not only emotionally but also financially.
Research shows median costs rising across a range of senior living options. Adult children can face tremendous pressure to help pay those costs, especially when their parents’ condition deteriorates quickly. What do you do when Mom or Dad needs help but you’re waiting for their house to sell or their government benefits to be approved?
Fortunately, you may not have to face these short-term difficulties on your own. Adult children have several options for financing senior care, including the transition stage, that can provide some relief.
What does senior care cost?
Costs can vary widely depending on required level of care, location, and other factors. In general, a 2017 study paints a statistical picture that ranges from $18,000 per year for adult day care to $97,000 per year for a private room in a nursing home.
Median costs of long-term senior care
Adult day care
Assisted living (one-bedroom)
In-home health aide
Nursing home (semi-private)
Nursing home (private)
Source: Genworth Financial 2017 Cost of Care Study
Note: Median is the statistical midpoint between highest and lowest, not the average.
Unless your parent qualifies for public assistance or your family has considerable financial resources, paying even a modest amount for senior care could prove challenging. Those challenges make it essential for adult children and their families to explore their options, especially when they need transition funding in a timely manner.
Short-term options for senior care
When it comes to senior care, most funding options focus on the long term rather than the short term. But, depending on your situation, you do have a few short-term options to consider. They include:
You might consider a personal loan to help finance a parent’s transition to supervised care. Don’t think of personal loans as limited to cars or real estate — they can provide cash for a wide range of one-time expenses.
In fact, a specialized type of loan has become more common in recent years as families look for creative solutions to financing elder care. The term “bridge loan” usually applies to selling one house and buying another, but an elder care bridge loan is designed specifically for senior care transitions.
The typical scenario for an elder care bridge loan involves a senior moving into an assisted living facility. The borrower would take out the loan to help with moving costs, entrance fees, and other short-term expenses.
Banks and other lenders may offer two types of bridge loans for elder care:
A secured loan: This type of loan, sometimes called a capital access program, uses real estate and other assets as collateral. The borrower gets a lump sum upfront.
An unsecured line of credit: This option works like a credit card, with the borrower using funds as needed.
The type of senior bridge loan you choose depends on your situation. If you need a large amount of money immediately, for example, you may prefer a secured loan.
This type of personal loan is a relatively new financial product, but the same basic guidelines for any type of loan still apply. Pay particular attention to deciding between fixed-rate and variable interest, and keep in mind that any secured loan requires putting up assets as collateral.
Using a reverse mortgage to pay for senior transition usually involves a specific set of circumstances. In the typical scenario, one elderly parent moves into a facility while his or her spouse remains in their home and retains ownership. The reverse mortgage allows the spouse to convert the equity in the home into cash.
Remember that a reverse mortgage carries the same risk as any type of secured loan, namely collateral. Other potential drawbacks include borrowing limits and eligibility requirements, as well as high closing costs and fees. For those reasons, many financial advisers caution against reverse mortgages except as a last resort.
Most reverse mortgages involve borrowing from a traditional lender, such as the Federal Housing Administration’s Home Equity Conversion Mortgage program. In recent years, however, intra-family mortgages have emerged as an alternative to traditional reverse mortgages for senior care financing.
An intra-family mortgage for senior care allows family members to provide the financing instead of banks or other outside sources. This option, arranged by an attorney, could certainly provide funds to help a senior relative transition to some level of custodial care.
Some family caregivers choose an intra-family mortgage to avoid dealing with closing costs, fees, eligibility requirements, borrowing limits, and other factors associated with traditional lenders. On the other hand, that same lack of structure could lead to the borrower getting in over his or her head.
Above all else, remember that mixing business with family can become a source of tension and conflict.
Comparing short-term options
Quick cash infusion
Senior bridge loans
What about interest and fees?
Paying back the principal plus interest is, of course, standard procedure for loans and mortgages financed by banks and similar lenders. Although intra-family mortgages may bypass interest and fees, you’ll still have to pay an attorney for setting up the agreement. You may also need the services of a lending agency to assist you in drafting the paperwork.
What’s your ideal solution?
Every option has its pros and cons. Your individual circumstances will determine which one offers the best combination of affordability and convenience. Just don’t lose sight of the fact that almost any activity involving money can become an expense in itself.
From the short term to the long run
Once you’ve found a short-term solution for senior care transition, keep in mind that more work lies ahead. You’ll need to start thinking about long-term funding options, such as Medicare, Medicaid, long-term care insurance, insurance conversions and more.
For the immediate future, though, rest assured that you have short-term options that can help you and your family take the first step on the journey.