Because a reverse mortgage allows you access to home equity, your income can improve dramatically. Increased income, however, can have an impact on government sponsored programs, specifically Medicaid and Medicare.
First the good news–taking out a reverse mortgage will have no impact on your Medicare coverage, or, for that matter, your Social Security payments.* Medicaid coverage is more complicated, but it’s still possible to take out a reverse mortgage and continue to receive Medicaid coverage.
Medicaid is a government-sponsored program designed to help low-income individuals handle health costs. To be eligible, an individual can only have liquid assets of $2,000 or less at the end of each month. Couples have a maximum allowance of $3,000. Your home and one car are exempt when calculating monthly assets.
This means it’s possible for a reverse mortgage to push you over Medicaid’s maximum monthly limits. Should you want to maintain Medicaid coverage, you have two options.
The first is to take your reverse mortgage payout as a lump sum, and spend it immediately. In most cases this is an ill-advised move, but might be worth considering if you’re taking out the mortgage to immediately pay off a large debt.
If, however, you’re looking to increase your monthly income, you should discuss the advantages of an adjustable rate home mortgage with your lender. With an adjustable rate reverse mortgage, you can set monthly payments that, when added to your other liquid assets, do not push you over Medicaid’s monthly allowance.
You should also discuss what will happen if you’re no longer able to live in your home. Should this eventuality arise, the mortgage debt must be settled. If you have significant equity when you settle the debt, the sudden influx of capital could result in the loss of Medicaid benefits. If your health is declining and you feel you’ll need nursing home care soon, a reverse mortgage may not be the best financial solution for your needs.
Reverse mortgages and Medicaid benefits don’t have to be mutually exclusive. You do, however, need to fully understand how the two interact. To gain a complete understanding of the situations described within this article as well as the potential effects a reverse mortgage may have on Medicare, Medicaid and SSI, please consult with your financial adviser or an elder law attorney who specializes in these matters.
*May affect SSI or Medicaid. Please consult with your financial advisor.