Will a Reverse Mortgage Affect My Medicaid or SSI Benefits?
Key Takeaways
- Reverse mortgage proceeds are considered a loan, not income.
- Keeping proceeds in your bank account past the end of the month can disqualify you from Medicaid.
- Consult an elder law attorney before mixing reverse mortgages with government benefits.
Many seniors rely on means-tested government programs like Medicaid and Supplemental Security Income (SSI) to cover healthcare and living expenses. Because these programs have strict income and asset limits, seniors frequently worry that getting a reverse mortgage will cause them to lose their benefits.
The interaction between a reverse mortgage and government benefits is highly complex and requires careful management.
Not Income, But Loan Advances
First, the good news: The IRS and government benefit agencies do not consider reverse mortgage proceeds to be "income." Because you are borrowing your own equity and paying interest on it, the money you receive is classified as a loan advance. Therefore, receiving a reverse mortgage payment does not immediately increase your reportable monthly income for SSI or Medicaid purposes.
The "End of the Month" Asset Trap
While the money isn't income, it does become a liquid asset the moment it sits in your bank account. This is where seniors lose their benefits.
Medicaid and SSI have strict asset limits (often around $2,000 for an individual). If you draw $10,000 from your reverse mortgage line of credit to fix your roof on the 10th of the month, but you don't pay the contractor until the 5th of the next month, that $10,000 is sitting in your checking account when the month rolls over.
When the government checks your asset levels at the end of the month, they will see you have $10,000 in liquid assets. This violates the $2,000 limit, and your Medicaid and SSI benefits will be suspended.
How to Protect Your Benefits
To safely use a reverse mortgage while on Medicaid or SSI, you must adhere to the "spend down" rule:
- Only draw what you need immediately. Never draw a large lump sum just to keep it in your checking account for a rainy day. Leave the money in the reverse mortgage line of credit, where it does not count as an asset.
- Spend it within the same calendar month. If you draw funds, you must spend them on legitimate expenses (repairs, groceries, medical bills) before the last day of the calendar month in which you received them.
Medicare and Social Security
It is important to note that a reverse mortgage has zero impact on standard Medicare or standard Social Security retirement benefits. These programs are entitlement programs based on your work history and age, not means-tested programs based on your current wealth.
Because state Medicaid laws vary significantly, you should always consult with a qualified elder law attorney before taking out a reverse mortgage if you rely on means-tested benefits.