Reverse Mortgage Impact on Medicaid Eligibility

My mom has a reverse mortgage on her home and she needs to apply for Medicaid. Does this count as income? What should we do?

No, a reverse mortgage does not count as income, and therefore, will not count towards Medicaid’s income limit. However, Medicaid also has an asset limit, and in some cases, a reverse mortgage counts as an asset. Please note: One’s home is generally exempt up to a state-specific home equity interest if the owner resides in it. If a reverse mortgage puts your mom over the asset limit, she will not qualify for Medicaid until she “spends down” the excess assets.

A reverse mortgage, also called a home equity converse mortgage, is a cash loan against one’s home equity value. If the approved loan amount is taken as a lump sum payment, and a Medicaid applicant is sitting on this cash, it can cause them to be over the asset limit, and therefore, ineligible for Medicaid. That said, if your mom has received a lump sum payment, it is important that she spend it prior to applying for Medicaid. Otherwise, it will count as an asset. There is also the option to receive monthly cash payments, which as mentioned previously, do not count as income. However, if the loan payment is not spent during the month it is received, it will count as an asset, and again, can result in Medicaid ineligibility.

There can be additional complexity if your mom is leaving her home for a nursing home. In this situation, she may have to sell the home to pay off the reverse mortgage, but selling the home may result in her having a large sum of cash, which will again be counted as an asset and may disqualify her. You might consider contacting a Professional Medicaid Planner in this situation.