Being a caregiver is a hard job. It gets a lot harder if the person you're caring for is running out of money.
And if that person doesn't qualify for Medicaid or Social Security Disability Insurance — and neither of you are multimillionaires — then you and your loved one are going to have to make some difficult choices about how to get more money.
Caregiving costs outside the family are daunting. Nursing homes run an average of $7,756 a month for a shared room, and assisted living facilities average $4,300 a month, according to insurance company Genworth's 2020 survey on the cost of long-term care.
Medicare generally doesn't cover nursing homes, although it can cover some home health care if the recipient is homebound. If the person you're caring for doesn't have long-term care insurance, you'll have to find ways to get more money.
Homeownership is one path to help
For most people, the biggest source of untapped funds is their home. The average homeowner between the ages of 55 and 64 had home equity of $133,000 in 2018, according to the most recent U.S. Census Bureau data available. Those 65 and older had average home equity of $174,000.
If the only real option for a loved one who's receiving care is an assisted living residence or nursing home, then selling the home is an ideal way to raise money. Someone who needs extra money to pay for home-based care could buy a smaller, less expensive house or condominium and use the profit to pay the extra medical expenses.
In many cases, profits from the sale of a primary residence — a home you've owned and lived in for at least two years — are tax-free. There is no capital gains tax on up to $250,000 of profit on a home sale for a single homeowner and up to $500,000 for a married couple.
Nonprofit organizations such as AARP have toll-free support lines to provide answers to questions, make referrals and point to resources for caregivers.
• AARP. 877-333-5885, 7 a.m. to 11 p.m. ET weekdays; Spanish language: 888-971-2013, also 7 a.m. to 11 p.m. weekdays.
• Alzheimer's Association. 800-272-3900, advice on Alzheimer's and other dementias 24 hours a day every day.
• SeniorLiving.org. 866-901-4858, advice on dementia, finances and senior housing, 7 a.m. to 11 p.m. ET daily.
However, many people don't want to leave their longtime homes, especially if that means leaving nearby family and friends. Those people have three other options, none entirely satisfactory: a home equity loan, a home equity line of credit and a reverse mortgage.
A home equity loan is a lump-sum loan secured by the paid-up portion of a home, the amount left over once the mortgage balance is subtracted.
A home equity line of credit (HELOC) is a preset amount of money that the home equity secures. The borrower can tap it periodically, like a credit card.
In either case, the homeowner will need a property appraisal to determine how much it's possible to borrow. The homeowner also will need a good credit score, ideally above 700, as well as proof of the ability to afford to make loan payments.
If the monthly payments aren't made, the homeowner can lose the property.
Interest rates for home equity loans and lines of credit are relatively low. The average home equity rate in October 2021 was 5.94 percent, and HELOCs averaged 3.88 percent, according to Bankrate.
A homeowner can lock into a fixed rate with a home equity loan, which can be a smart move in the current low-interest-rate environment, says financial planner Ray Ferrara of Clearwater, Florida. HELOCs typically have higher, adjustable rates.
A reverse mortgage also can give a person the ability to get payments based on the equity in the home. The federal government insures its program, called a home equity conversion mortgage (HECM), for homeowners 62 or older who own their houses outright or have very little mortgage left.
A borrower has to live in the house as his or her primary residence.
The borrower can live in the home until he or she moves or dies, and a younger co-borrower, such as a spouse, can stay in the home until he or she dies or moves. If any equity remains after the loan is paid off, the borrower or the borrower's heirs will get to keep it.
Fees and interest payments will raise the costs, and the longer a homeowner has the reverse loan, the more those will eat into the amount of home equity.
The homeowner has to visit a government-approved HECM counselor to help decide if a reverse mortgage is the best option, and a Federal Housing Administration-approved lender in the program must be used. How much a homeowner can borrow depends on his or her age, current interest rates and the value of the home.
Drug companies may offer aid
Cutting medical expenses is another way to help the person you're caring for.
Patient assistance programs (PAPs) from drug companies can help a loved one get drugs and other medical care at low cost. Those who qualify generally have to be a U.S. citizen with no prescription drug coverage and also have to meet income guidelines.
HHS also oversees the Administration for Community Living, where patients and caregivers can find information about low-cost or free help in their area. For example, the administration's website, which provides objective information and counseling for people of all incomes, will help you find aging and disability resource centers in your area.
It also can help caregivers and their loved ones find adult day care, senior centers and transportation services in the area.
Sometimes the best help is right at hand. It may take a village to raise a child, but it takes one to care for the old and sick, too.
"These are situations where people often have to rely on family and kids to help” personally, says financial planner Stephen Janachowski of Mill Valley, California.
Editor's note: This article, originally published Oct. 21, 2019, has been updated with more recent data on nursing home costs, average home equity for older homeowners, and average rates for home equity loans and HELOCs.
John Waggoner has been a personal finance writer since 1983. He was USA Today's mutual funds columnist from 1989 through 2015 and has worked for InvestmentNews, Kiplinger's Personal Finance, the Wall Street Journal and Morningstar.
Need cash now? 7 methods to avoid
You may have seen online and TV ads promising to convert assets into fast money or driven by stores touting instant loans. These can be tempting options as caregiving costs spiral, but be wary: They can be expensive and have long-term financial implications for you and your family.
1. Charging too much — or getting a cash advance — on credit cards. The average interest rate on cards is more than 17 percent if the balance isn't paid in full each month.
2. Getting a car title loan. These loans, advertised as fast cash, generally are repayable in full plus interest in 30 days, and interest rates can be at least 300 percent annually. If the loans aren't repaid in full, the lender can take away and sell the vehicle.
3. Seeking out a payday loan. Widely available online and in retail stores, payday loans are easy to come by but hard to get out of, with sky-high annual interest rates and snowballing late fees that can trap borrowers in a debt cycle.
4. Taking out a pawnshop loan. Not only will you face high interest rates often for a fraction of the real value of the item, but some shops charge insurance and storage fees to hold the valuables. Over several months, that can drive up what is owed to potentially more than the item's worth.
5. Using brokers who promise extremely high returns. High returns mean high risks, and any adviser who promises high guaranteed returns is a con artist. Pro tip: Be wary of seminars that offer free lunches or dinners. Check out any adviser's record through your state securities administrator and the Financial Industry Regulatory Authority's BrokerCheck program.
6. Surrendering whole life insurance. While whole life policies can be a good source of emergency income, surrendering the policy means that heirs will get no benefit when the insured dies. Ask your agent about making limited withdrawals or borrowing against the policy instead.
7. Withdrawing from an annuity. Typically, fees and taxes make withdrawing from an annuity a bad decision. The person entitled to regular payments from an annuity can sell those payments to a factoring company, such as J.G. Wentworth, which will take a percentage called the “effective discount rate” that can total 9 percent to 15 percent or more.