Reverse Mortgage Loans and Federal Assistance

Many seniors who are considering reverse mortgages worry that they may lose federal assistance if they apply for a reverse mortgage. The truth is that a reverse mortgage does not affect a senior's Social Security or Medicare benefits with one exception - Medicaid.

The monthly payment a senior receives as part of the reverse mortgage process is considered income, unless you use the money within the month the check is received. For example, let’s say you need money to pay for medical bills as a result of a short-term illness. If you use the money as soon as it is received, you would still be eligible for all benefits paid by the federal government.

But, if the funds in your account exceed $2000 per individual or $3000 per couple and have not been used, you would not be eligible for Medicaid.

This rule is part and parcel of the Deficit Reduction Act passed in 2005. "Section 6014 of this act establishes an upper limit for the excluded value of a home when determining the value of an individual’s assets for purposes of Medicaid eligibility. An individual will not be eligible for Medicaid nursing or other long-term care services if the equity interest in his/her home exceeds $500,000. States may increase the equity limit, but may not exceed $750,000."

Starting next year, the dollar limits will be increased on a yearly basis, consistent with increases in the consumer price index. The equity limits will not apply if the individual’s spouse, child under 21, or disabled adult child lives in the home.

However, it is important to note that this legislation does not affect seniors who apply for reverse mortgages. Section 6014 states that: “The provision does not prevent individuals from using reverse mortgages or home equity loans to reduce equity value. The Secretary of Health and Human Services will establish a hardship waiver process. The provision applies to individuals who are determined eligible for nursing or other long-term care services based on an application filed on or after January 1, 2006.”

Therefore, it is recommended that you check Medicaid services in your state to find out what their rules and regulations are as it applies to reverse mortgages.