Reverse Mortgages and Medicaid Eligibility Considerations
A home equity conversion mortgage, known more commonly as a reverse mortgage, can be a viable option for senior homeowners who wish to improve their lifestyle during their elder years. However, while a reverse mortgage can improve a senior homeowner’s finances, there are some aspects of a reverse mortgage that may hinder the homeowner’s ability to receive certain government benefits.
Senior homeowners with Medicaid, a federally and state-funded program that provides health care coverage for the needy, may find their eligibility impacted by taking out reverse mortgages, especially if they opt to receive their payments in a lump sum. Medicaid provides free or reduced-cost health care coverage to more than 50 million children, families, pregnant women and people with disabilities. It’s something that many Americans rely on when it comes to taking care of their health or their family’s health. Senior citizens who are on fixed incomes also rely on Medicaid to get the health care they need. Unfortunately, because eligibility for Medicaid is based on income and financial resources, those who receive reverse mortgage payments may face some limitations when qualifying for coverage.
A reverse mortgage works in the opposite way that a typical mortgage does. Instead of the homeowner making monthly payments toward the loan, the mortgage lender actually gives money to the borrower – either in a lump sum or in regular installments (or sometimes a combination of both). The reverse mortgage amortizes backwards, with the loan balance actually increasing over time instead of decreasing. The reverse mortgage becomes due and payable when the last remaining borrower listed on the mortgage no longer lives in the residence.
Because of the nature of a reverse mortgage, borrowers’ incomes may be affected to the point where they make too much money to be eligible for “means tested” government programs such as Medicaid or Supplemental Security Income (SSI). Means-tested programs are programs that test to see how much financial resources a homeowner has available to determine whether or not they are eligible. Non-means-tested benefits, like Social Security, determine eligibility by looking at other factors and income doesn’t matter.
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It’s important to note that having a reverse mortgage will not necessarily disqualify you for Medicaid or other means-tested programs. Your eligibility for such programs will depend on your financial situation and how much money you are receiving as a result of the reverse mortgage. Homeowners who receive a lump sum from a reverse mortgage are at a higher risk of losing some Medicaid eligibility, because whatever money is retained in the month after it is received could be considered income. A lump sum will naturally be a larger amount than smaller, installment payments so it is more likely that the amount gained from the lump sum could be enough to boost the homeowner’s income and push him or her over the eligibility threshold.
Those who receive regular payments from their reverse mortgage are less likely to be pushed out of the eligibility threshold, but that doesn’t mean it’s impossible. Homeowners who receive regular payments from their reverse mortgage need to be careful that the amount they are receiving isn’t enough to increase their income to the point where they lose benefits. The rules for income and financial resources when it comes to Medicaid and other means-tested government benefits can be confusing and complicated, so it’s a good idea to enlist the help of an experienced professional before making any final decisions.
Many senior homeowners find that a reverse mortgage makes a lot of sense for their situation; however, it may not be the best choice for everyone. An experienced financial planner, accountant, housing counselor, or and/or reverse mortgage professional can assist you with determining if a reverse mortgage is a wise choice for you. They can investigate the laws and eligibility requirements for Medicaid while also helping you understand the risks and benefits involved in taking out a reverse loan.
At Alpha Mortgage, we’re pleased to help senior homeowners secure home equity conversion mortgages, and we always strive to make clients feel comfortable and informed before making decisions. If you’d like to hear more about our programs or have any questions, please contact us today for a free, no-obligation consultation.