How does a reverse mortgage affect government benefits?
One of the common concerns of people considering a reverse mortgage is how the proceeds will impact their eligibility for government benefits.
The good news is that a reverse mortgage will not affect Social Security or Medicare benefits.
On the flip side, taking out a reverse mortgage can impact your eligibility for Medicaid or Supplemental Security Income (SSI). That’s because both of these programs have limits on the the income and assets a person can have to qualify.
Medicaid helps low-income individuals with health care expenses. Supplemental Security Income (SSI) is a government program designed to help aged, blind, and disabled people who have little or no income by providing cash to meet basic needs for food, clothing, and shelter.
Among the eligibility requirements for both programs, an individual must own $2,000 or less in assets at the end of each month. Married couples can own no more than $3,000 in assets at the end of a month to qualify. Your home and one car are exempt when calculating assets, meaning Medicaid and SSI does not count their value when determining your eligibility.
How a reverse mortgage can impact your eligibility is if you receive a lump sum cash payment that pushes your asset total above the $2,000 or $3,000 level. If at the end of the month you have more than that amount, you will lose your Medicaid or SSI eligibility.
Of course, it may be worth it to forfeit government benefits if the proceeds from the reverse mortgage provide needed cash that exceeds what those benefits are worth.
If, on the other hand, you need Medicaid to pay for health care costs, some experts advise people to spend their reverse mortgage proceeds before the end of the month. This is an option if you are planning to use reverse mortgage funds to pay a single large expense or debt.
Another way to minimize the impact of a reverse mortgage on Medicaid or SSI is to opt for a monthly income payment instead of a lump sum. You can set the payment amount at a level that allows you to spend it down before the end of the month to maintain Medicaid or SSI eligibility.
For example, if you receive $1,500 a month from a reverse mortgage and spend most or all of it each month, you won’t lose eligibility.
Another scenario that could impact your Medicaid eligibility is if you have to move out of your home and into assisted living or long-term care.
As long as you own your primary residence, its value does not impact your Medicaid eligibility. But once you move out of the home, you will have to repay the reverse mortgage loan, which often means selling the property.
If after selling the home you repay the loan and have money remaining, those leftover funds become an asset that will likely eliminate your Medicaid eligibility.
For example, say you own a $300,000 home, and you take out a reverse mortgage for $150,000, which you receive in monthly payments. A few years later, you have to move into a long-term care facility, which means you have to repay the loan. You sell the home for $300,000 and repay the $150,000 reverse mortgage, leaving you with $150,000 in cash. That cash puts you over the Medicaid asset limit, costing you your eligibility.
In many cases, it might be better to have that cash than rely on Medicaid, but just know that the transaction will impact your eligibility for the government benefits.
It is possible to benefit from both a reverse mortgage and these two government programs, but participants need to understand how they interact. Those who participate in Medicaid or SSI should consult a financial adviser and/or an elder law attorney who specializes in these matters before taking out a reverse mortgage.