When a senior’s health and independence starts to decline, their families are often led to make difficult decisions on where their loved one might live. Although moving a senior is never an easy choice, assisted living may help in more ways than you think. This can put a lot of your stress at ease, knowing your loved one is being taken care of in an environment that encourages socialization and healthy living. But paying for an assisted living community can be a concern for families, especially if a parent didn’t factor health care cost in their retirement income plan.
Fortunately, there are many financing options available to seniors. One of the most common ways to pay for Assisted Living is through bridge loans. This type of loan can help you offset the expense of an assisted living community while ensuring your loved one gets the care they deserve.
This article will cover how bridge loans work, what you can expect to pay, and the risks involved.
*This content is for informational purposes only. This information should not be considered to be legal, tax, or tax advice.
What is a Bridge Loan?
A bridge loan is a short-term financing option that’s made to “bridge the gap” or cover outstanding funds. Oftentimes, this kind of loan is used when someone is moving into a new house. It can give you money to buy property–or to apply to a down payment–while you’re waiting for the existing home to sell. But instead of using the loan towards a home, seniors can use it for their assisted living fees.
Using a Bridge Loan to Pay for Assisted Living
Many seniors might not be able to wait for their house to sell before moving into an assisted living community because they may need care immediately. And if the housing market is slow, it can be too long for a senior to wait before moving, making a bridge loan an attractive option.
However, getting a bridge loan gives seniors and their families the flexibility to offset these costs and ease the burden until other financial resources become available. When using a bridge loan to pay for an assisted living community, seniors will have recurring fees rather than one large fee – like the purchase of a house. That’s why it is better for seniors to borrow on a line of credit than to get a lump sum of cash.
Risks Associated with Bridge Loans
Like all forms of financing, there are risks and requirements all seniors should be aware of before applying for a bridge loan.
For example, bridge loans are usually taken out with the intention to repay the borrowed amount with the sale of your existing home. But what if your house doesn’t sell before the loan is due? This can leave you paying for a mortgage–if the house is not paid off yet–assisted living fees, and bridge loan payments for an undetermined amount of time.
Before taking out a bridge loan, consider doing some research on the current housing market. By doing this, you will have a rough estimate of how long homes are taking to sell.
Additionally, you may need to think about other options before committing to a bridge loan. You can take out a home equity line of credit (HELOC), borrow against your 401(k) plan or get a loan secured by stocks, bonds, and other investments.
Other negatives of having a bridge loan can include:
- High interest rates
- High origination fees
- More expensive than home equity loans
- Must be able to qualify to own two homes
Making Payments on a Bridge Loan
When you take out a bridge loan, you’ll soon need to make payments on it. Most lenders are comfortable loaning more than $185,000 for 12 months or less. If you need an increase on a loan or extended payment time, your lender will evaluate your circumstances, but more work may be required.
Although repayment options for bridge loans may be structured in many different ways, lenders typically have a “balloon payment” during the last three months where the full amount is due on a particular date.
Qualifying for a Bridge Loan
There are only two things you need to qualify for a bridge loan, which is a copy of the Sale Agreement from your current home and the Purchase Agreement for your new home. If you don’t have an exact selling date, then you may need to consider a private lender for your bridge loan because most banks will require it.
When families consider assisted living communities for their senior parents, it’s important to remove some anxiety by having a plan in place for how to pay for the expenses. Obtaining a bridge loan can be the right solution – especially if a senior needs to move into a community soon.
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