The reverse mortgage is a kind of home loan that is rather unique. It allows the borrower to convert part of his home equity to cash. This means that you can actually be paid the equity you have accumulated on your home mortgage. This article looks at how a reverse mortgage may or may not affect eligibility for Medicare and Medicaid benefits.
Taking out a reverse loan will not result in immediate disqualification for Medicare and Medicaid In fact regardless of the mortgage loan amount or timing of the loan. Medicare would not be affected because it is a Medical Insurance privilege program for seniors over 65. Your eligibility for Medicare begins at 65 as long as you or your spouse worked 10 years or more at a Medicare sponsored employer and have citizenship.
Medicaid is slightly different as it is a program sponsored by the government. Its aim is to offer health care to individuals with limited incomes. Eligibility is determined by review of the applicant's, income and assets using a means test. Income guidelines can vary from state to state. According to Department of US Health and Human Services Medicaid eligibility requires applicants to have no more than $2,000 ($3,000 for a couple) in countable assets one day out of the month.
The reverse loan program does not automatically disqualify the homeowner for Medicaid either, but it could be affected if excessive funds are withdrawn as a lump sum as in a HECM Standard where the mortgage equity is provided at one time which would result in exceeding the means test. This can be averted by utilizing the Reverse Tenure Program which provides a smaller monthly benefit and or the monthly benefit and line of credit option to avoid too much cash at one time in reserves. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable making eligibility for Medicaid not the issue but rather passing the monthly asset income means test.
Reverse mortgage is a very safe program which offers great financial security to seniors. They can use the cash to provide for a number of financial needs. Such needs might include consolidation of debts, social security supplement, to make improvements in the home, pay property tax or meet urgent medical expenses. Those who are eligible for this kind of loan are those who are 62 years and above. They should also own the homes outright and must live in them as the primary residence. Alternatively, their mortgage balance should be low enough that it can be easily paid off during the closing using some proceeds from the loan. For the home to qualify, it should either be 1-4 units or a single family home. Condominiums and manufactured residences approved by HUD can also qualify as long as the FHA requirements are met.
In review the reverse mortgage does not affect non-means-tested government benefits programs such as Medicare. Medicare is an entitlement program which you are eligible for regardless of your income. Means-tested programs such as Medicaid can however be affected by reverse mortgage only if the wrong type of loan is issued These programs are sometimes a bit complex and not well understood by most individuals. There are however independent counselors who can be contacted for help and all FHA HECM loans require government sponsored counseling to be sure you have all the facts prior to consummation of the reverse mortgage. They answer all of your concerns to help you make an informed final decision.