Depending on which payment route a borrower chooses for a reverse mortgage, the loan proceeds could affect Medicaid or Supplemental Security Income (SSI) eligibility.

Those who are 62 and older and are looking to supplement their retirement income through a reverse mortgage should also consider the implications this decision could have on any needs-based programs.

Reverse Mortgage Affects on Medicaid

Means-Tested Benefits

For means-tested benefits that are available based on income and assets, reverse mortgage loan advances that are held in the borrower’s bank account may be counted as assets and thus may disrupt eligibility, according to the NeighborWorks HECM counseling Training Manual, which is used nationally by certified reverse mortgage counselors to inform borrowers about the loan and its possible implications.

Borrowers who choose the lump sum option for payment have an exceptionally high risk of losing eligibility for means-tested assistance, as they are more likely to reserve the proceeds from their loan in the bank account.  This money is viewed as an asset.

Medicaid/SSI Income Limits

Asset level limits are an important and common factor that Medicaid and SSI share.  When borrowers take out a reverse mortgage loan, they can receive their home equity through a line of credit, a lump sum, monthly payments, or some combination of these three options.

But for those eligible for and receiving, or expecting to receive, certain government needs-based benefits, there may be better routes than the lump sum payment option for reverse mortgage proceeds.

Most needs-based programs consider income and assets when determining whether an individual qualifies for government assistance.  While reverse mortgage proceeds generally don’t qualify as taxable income, the unspent balance from a lump-sum reverse loan could put a borrower’s assets over the limit.

Medicaid and SSI consider a recipient’s assets—including money sitting in a bank account when determining eligibility.

Medicaid Asset Limits

Medicaid is another needs-based program that considers a senior’s income and assets, although limits vary from state to state.  In 2023, typical asset limits for Medicaid benefits were $8,400 for an individual and $12,600 for a couple, although some state limits are very generous, and others have no limits at all.

Because of these limits, a Medicaid-eligible senior who receives a lump sum from reverse mortgage proceeds will likely lose eligibility, according to NeighborWorks, unless that money is spent immediately.  Additionally, Medicaid recipients must account for all cash in and out of their bank accounts.

Supplemental Security Income (SSI) Asset Limits 

SSI, a federal program for the elderly or disabled, requires participants to have an income beneath the national poverty level and consider assets.  In 2023, the program had a universal asset limit of $2,000 in assets for individuals and $3,000 for couples.  So, reverse mortgage borrowers who choose the lump sum option would likely become ineligible for SSI assistance.

And, if borrowers received SSI benefits when their asset levels were above the limit, they may be forced to return that money through reductions to their Social Security checks.  Still, borrowers need to make informed decisions about how they want to receive their loan proceeds, especially when considering means-tested benefit programs.  A reverse mortgage is a handy tool for increasing cash flow.

Although a lump sum wouldn’t necessarily rule out Medicaid eligibility for seniors in some states, it often eliminates necessary qualifications for Supplemental Security Income.  There aren’t any conventional methods for getting around these asset limits, as funds stemming from a loan done through power of attorney would still be attributed to whoever is on the deed of the home.

Reverse mortgage borrowers should look into their state’s requirements and determine how a reverse mortgage will affect their eligibility before deciding which kind of payment they will choose.

Note: Medicaid and SSI are needs-based programs not to be confused with public benefits such as Social Security and Medicare.  Reverse Mortgage loans do not affect your public benefits.

Needs Based FAQs

Q.

How does a reverse mortgage affect Medicaid?

Medicaid is a “needs-based” program.  We encourage all borrowers to verify their benefits with their financial advisor and then take steps to be sure they do not endanger their benefits (like having excess borrowed funds in their accounts at month’s end).  Having the loan funds available will not affect your Medicaid, but having too much money in your account at the end of the month could.
Q.

Can a reverse mortgage affect Social Security or Medicare?

Social Security and Medicare are not “needs-based” programs; borrowed loan funds will not affect your access to these programs.
Q.

What happens to a reverse mortgage when the owner enters a nursing home?

When a homeowner with a reverse mortgage permanently leaves their home for any reason, the loan will become due and payable.  Borrowers can be gone temporarily for up to 12 months for health reasons before the move is considered permanent.  If borrowers or their families become aware that an action will be permanent before the 12-month limitation, they can begin to make arrangements to pay off the loan or sell the home even before that time limit.
Q.

Does a Reverse Mortgage count as income?

Reverse mortgage proceeds are borrowed funds and therefore are not considered income.  You’ll need to talk to your accountant, though, because any borrowed loan proceeds, never repaid, and the lender cannot recoup from the sale of the property could result in a taxable event to the estate.  Your accountant must tell you what you need to do in this instance and for tax purposes.
Q.

Can I request a paper check from my reverse mortgage to avoid running proceeds through my bank account?

Borrowers can receive a direct deposit, which is a much faster way to receive their funds, but if they so choose, they may have a check written and mailed instead.  The check would be made payable to all borrowers on the loan.

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