Is a Reverse Mortgage Right for You?

While reverse mortgages may look like no-lose propositions on the surface, they also have some significant downsides. First, the closing costs for these loans are about double those for conventional mortgages. For example, closing costs on a $110,000 reverse mortgage for a $200,000 home would be more than $10,000. These costs can be financed by the loan itself, but that reduces the money available to you.

Reverse mortgage payments also may affect your eligibility for government benefits, including Medicaid.  Generally, these payments will not be counted as income as long as they are spent within the same month that they are received. The unspent balance from a lump-sum reverse mortgage loan could put a borrower over the allowable asset limits for Medicaid or Supplemental Security Income (SSI) eligibility.  Even if the loan is taken as monthly payments, the payments could accumulate and push your resources over. In addition, payments from reverse annuity mortgages may be counted as income for purposes of Medicaid and SSI whether or not they are spent within the month they are received. This shouldn’t be treated as income, since it simply involves withdrawing equity from one’s home, but the state may view it differently since the funds come in a regular monthly check. In any case, you should consult with an elder lawyer in your state if you have any concern about how a reverse mortgage will affect your eligibility for federal benefits.

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David Wingate is an estate planning and elder law attorney at Estate and Elder Planning by David Wingate. The Estate and Elder Planning office services clients with powers of attorneys, living wills, Wills, Trusts, Medicaid and asset protection. The Elder Law office has locations in Frederick, Washington and Montgomery Counties, Maryland.

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