Does a reverse mortgage affect your eligibility for other programs and services?
Reverse mortgage payments: Are they income?
- Typically, reverse mortgage payments don’t count as income if you spend it the month you receive it.
- Reverse mortgage payments don’t count as taxable income.
- You may be eligible for income tax deductions for some costs associated with reverse mortgages.
- Though reverse mortgage payments won’t affect Social Security or Medicare eligibility, it may affect Medicaid and some other programs.
- When in doubt, consult with a real estate or elder law attorney.
A reverse mortgage can be a savvy financial product for seniors who need additional money to pay for everyday living expenses. But how will a reverse mortgage affect your eligibility for other benefits and services, such as Social Security or Medicare? Do the payments you receive from a reverse mortgage count as income, making it harder to qualify for social services?
Seniors aged 62 or older may take out a reverse mortgage, taking out money against the equity in their homes. They usually receive monthly payments, but sometimes reverse mortgages are taken as lump sums or lines of credit. This provides seniors with extra money while allowing them to continue living in their homes. The balance of the loan becomes due when the borrower moves, sells the house or dies.
Because the bank provides regular payments to the borrower, it can seem a lot like an extra source of income that could affect eligibility for various programs and services. But is that an accurate assumption?
How does a reverse mortgage affect Social Security, Medicaid and Medicare?
The bottom line is, if you opt to take your reverse mortgage proceeds as monthly payments, it will not affect your Social Security or Medicare benefits. These entitlement programs are there for all, and are not based on income. Your pension will not be affected either.
Reverse mortgage payments could affect your eligibility for some other needs-based programs that help low-income individuals, such as Medicaid or Supplemental Security Income (SSI) benefits.
Additionally, transferring the proceeds of a reverse mortgage into a bank account or into an investment account, may mean that the money is viewed as a financial asset. That could mean your financial assets leave you ineligible for Medicaid, program for low-income individuals and families. Always check with elder advocacy organizations in your area before taking out a reverse mortgage.
Do reverse mortgage payments count as income?
One concern about a reverse mortgage is whether the payments count as income. Many social services programs, such as Medicaid, use income requirements to determine eligibility.
Here’s the good news: The payments from a reverse mortgage do not count as income as long as you would spend the money in the month you receive it. If you do not spend the proceeds in the month you receive them, however, they are generally considered liquid assets and may affect your eligibility for income-based social service programs. Most programs will verify your income and assets to determine your eligibility when you sign up.
Medicaid has income limits for eligibility, and if your accrual of liquid aspects makes you ineligible for Medicaid, you may be able to reestablish your eligibility by spending the excess amount that made you ineligible on medical expenses — a process known as “spending down.”
Additionally, the proceeds of a reverse mortgage don’t count as taxable income, because they are loan proceeds that will eventually be repaid (often through the sale of your home). In fact, you may be eligible for income tax deductions based on some of the costs associated with taking out a reverse mortgage.
Play it safe: Consult an attorney
Reverse mortgages are complex financial products and every situation is different. The best course for anyone considering taking out a reverse mortgage, but wanting to weigh the advantages against the potential loss of other benefits, is to seek the advice of an attorney. Both real estate attorneys and elder law attorneys should be able to help seniors determine whether a reverse mortgage makes sense for them, and to avoid common pitfalls that can befall those who don’t enter into the transition carefully.