Reverse Mortgages and Nursing Homes
As you may already know, a reverse mortgage can be a beneficial part of an overall retirement plan for senior homeowners. In a reverse mortgage, the homeowner receives money from the lender instead of having to pay the lender a monthly mortgage payment. This can be a great way to help cover living expenses, medical care services or large expenses, especially if you’re on a fixed income. However, reverse mortgages do have some special attributes that may make it difficult for seniors to qualify for certain government-backed programs. Medicaid, for instance, which is often used to help cover nursing home costs, may not be available to senior homeowners with a reverse mortgage.
Because reverse mortgages actually pay out to the borrower, the money received may alter the homeowner’s income and resources to the point where they will not be fully or partially eligible for certain need-based benefits. If you are a senior homeowner and feel that nursing home care may be in your near future, you should weigh the pros and cons of a reverse mortgage before making a final decision.
The benefits of taking out a reverse mortgage include having extra money to help cover a wide range of expenses, from medical treatment to day-to-day living costs, to retirement planning. One reason many Americans take out a reverse mortgage is to help cover the cost of nursing home care. While this is certainly not a bad idea, it’s an option that should be considered very carefully. Here’s how the Medicaid/nursing home process usually works: In general, Medicaid allows you to to have no more than $2,000 plus a house and an automobile (subject to change – contact us for the most up-to-date figures). If a Medicaid recipient is married, the rules may be a little different and the amount of money you’re allowed to have may be higher. When you have a reverse mortgage, the amount of money you receive from that mortgage (usually referred to as proceeds) may boost your income or financial resources to the point where you exceed the maximum threshold. For instance, if you take out a lump sum reverse mortgage and your proceeds are $10,000, any money that you retain after the month you received the proceeds may be considered a resource. So, if you get $10,000 as a result of your reverse mortgage proceeds, and you spend $7,000 of it that same month, the $3,000 that is left over may be added to your resources. That alone may bump you out of the $2,000 eligibility bracket, and if you have additional funds, then you may be over the limit for Medicaid. Because Medicaid is a “means-tested” benefit (meaning they evaluate your eligibility based on your income and financial resources), you must be very careful when taking out a reverse mortgage.
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You may be thinking that this situation can be avoided if you opt for monthly payments instead of the lump sum. It’s definitely possible to accept monthly proceeds from your reverse mortgage and still be eligible to receive nursing home care through Medicaid; however, when you opt for monthly payments, the proceeds act to increase your income, which – if high enough – could bump you over of the eligibility threshold.
Depending on your established income and resources before a reverse mortgage, and depending on whether or not you see nursing home care as a likely possibility in the next 5 or 6 years, a reverse mortgage could still be a beneficial choice for optimizing your lifestyle and finances. The most important thing you can do as a senior homeowner is to educate yourself on how the reverse mortgage process works.
In addition to getting information from the lender, you should also protect yourself by reaching out to local resources in your area that specialize in senior care, financial planning or housing counseling. The U.S. Department of Health and Human Services has a very informative and easy-to-navigate website dedicated specifically to long term elder care. Visit it here: http://longtermcare.gov – to get more information on nursing home care, costs, regulations and more.
You can also visit the U.S. Department of Housing and Urban Development (HUD) for more information on reverse mortgage loans. Their website also has links to help you find a reverse mortgage counselor in your area who may be able to help you determine if a reverse mortgage is right for you. Visit their site here for details.
Also, be sure to read our page on paying back a reverse mortgage and give us a call for a free, no obligation consultation.