Introduction
Reverse mortgages can provide senior homeowners with a valuable stream of income that can be used for anything, including paying for long-term care. However, reverse mortgages can also have disadvantages, such as making a senior ineligible for Medicaid. Deciding if a reverse mortgage is a fit depends on the senior’s health, financial situation and future plans, like whether or not they will need Medicaid, and when they might need it.
There are several types of reverse mortgages, but the one relevant to this discussion is known as a Home Equity Conversion Mortgage (HECM), which is insured by the federal government and only available through a lender approved by the Federal Housing Administration (FHA). This kind of reverse mortgage gives senior homeowners (age 62 and older) the ability to convert some of their home equity into cash or a line of credit. The homeowner usually has to own at least 50% of the home’s equity in order to qualify for a HECM, and they have to see a federally approved reverse mortgage counselor as part of the borrowing process.
The amount of money the homeowner can receive from a reverse mortgage depends on their age, the home value, the reverse mortgage interest rate and the current mortgage balance on the home, which must be paid off by the reverse mortgage. The money from a reverse mortgage can be taken as a lump sum payment, in monthly payments, as a line of credit or some combination of the three.
A reverse mortgage loan does not need to be repaid as long as the borrower (or one of the borrowers if there were co-borrowers) lives in the home, maintains the home, pays their property taxes and pays for homeowner’s insurance. The co-borrower is most often a spouse, but it could be anyone else who lives in the home and is age 62 or older. The loan will need to be repaid when none of the borrowers have lived in the home for 12 months for medical reasons, or for 6 months for non-medical reasons, or after the borrower(s) have passed away. The home usually needs to be sold in order to pay off the loan in the end, with any of the remaining proceeds going to the borrowers or their heirs who inherited the home. The loan can also be paid off with other funds either by the heirs or the borrowers, or by simply turning over the deed to the house since a borrower can never owe more than the home is worth with a HECM reverse mortgage.
There are fees associated with a reverse mortgage, anywhere from 2%-8% of the loan amount. These fees are usually added to the loan balance so seniors don’t have to pay any upfront costs, but they will be paying interest on the fee costs.
It’s also important to know that only some homes qualify for a HECM reverse mortgage:
For seniors who already have a reverse mortgage and want to apply for Medicaid, there are two important areas to consider. First, how will the reverse mortgage affect eligibility. Second, what will happen with the reverse mortgage if the applicant is approved.
In order to qualify for Medicaid, applicants need to meet an income limit and an asset limit. The payments from a reverse mortgage will not count toward the income limit, but if they are not spent in the month they were received they will count toward the asset limit (which is $2,000 per applicant in most states in 2025) the following month. This rule will impact applicants in different ways depending on how they receive the money from their reverse mortgage:
Next we’ll look at what happens to an existing reverse mortgage once a senior is approved for Medicaid, which can affect how they handle the reverse mortgage and their overall financial situation as it relates to their Medicaid eligibility before they apply. With that in mind, here are the consequences for an existing reverse mortgage once a senior applicant is approved for Medicaid:
• For single seniors who are approved for Nursing Home Medicaid, the loan must be repaid after they have been in the nursing home for 12 months, or earlier, if they pass away. To do this, the senior will probably need to sell the house. If there is money left from the house sale proceeds after paying off the reverse mortgage, that will be counted toward the senior’s asset limit. This will probably make them ineligible for Medicaid, but they can use the extra money to pay for the nursing home until they get back down to the asset limit, at which point they can reapply for Medicaid. This is a complicated process and using a professional is advised.
• For married seniors who are both approved for Nursing Home Medicaid, the loan must also be repaid after they have been in the nursing home for 12 months, or earlier, if they both pass away. To do this, the couple will probably need to sell the house, just like the single senior mentioned above. If there is money left from the house sale proceeds after paying off the reverse mortgage, that will be counted toward their asset limit, and it will likely make them ineligible for Medicaid. But they can use the extra money to pay for nursing home care until they reach the asset limit and reapply for Medicaid. Again, this is a complicated process and using a professional is recommended.
• For a senior approved for Nursing Home Medicaid with a non-spouse, non-applicant co-borrower, the loan does not need to be repaid as long as one of the borrowers is still living in the home. If the co-borrower living in the home passes away before the co-borrower/Medicaid beneficiary living in the nursing home, the loan will need to be repaid if the co-borrower/Medicaid beneficiary has been in the nursing home 12 months or more.
• For married seniors where only one spouse is approved for Nursing Home Medicaid and the spouse who remains living in the home is not on the reverse mortgage as a co-borrower, the non-borrower spouse will likely have to repay the loan or move out of the house after the borrower spouse has been in the nursing home for 12 months or passes away. In order to avoid this situation, we recommend married couples with just one spouse on the reverse mortgage add the other spouse as soon as possible. There are also some cases like this where the non-borrowing spouse may not have to pay back the loan or move out as long as the loan was a Home Equity Conversion Mortgage (HECM) and the non-borrowing spouse meets all of the following criteria:
• For seniors who are approved for Home and Community Based Services Waivers (HCBS) Waivers or Aged, Blind and Disabled (ABD) Medicaid and plan on continuing to live in the home while they receive their Medicaid long-term care benefits, the loan will not need to be repaid until they pass away or they have to move out. This applies to single Medicaid beneficiaries living at home, married couples living at home with either one or both spouses receiving Medicaid long-term care benefits, or a senior Medicaid beneficiary living at home with a non-spouse co-borrower. As long as at least one of the borrowers is living in the home, the reverse mortgage does not need to be repaid.
For senior homeowners who are going to apply for Medicaid in the future, a reverse mortgage can be a useful financial tool for some, but they may not be a viable option for others. This usually depends on their marital status, their financial situation and where they plan to live, which is tied in with the type of Medicaid program they are planning to apply for – Nursing Home Medicaid, HCBS Waivers or ABD Medicaid.
We recommend seniors considering Medicaid, or their representatives, consult with our team of professionals before taking out a reverse mortgage. However, the following are some general guidelines that can help seniors and their families consider their options when it comes to reverse mortgages and Medicaid.
Reverse mortgages are best suited for seniors who plan to stay in their home for at least 5 years. This could apply to:
Again, any senior considering Medicaid and taking out a reverse mortgage needs to be careful the proceeds from the loan don’t push them over the asset limit, which means reducing a lump sum reverse mortgage payment until they are below the asset limit, or regularly spending monthly payments so they don’t accrue and put them over the asset limit after they have been enrolled in Medicaid.
Another option for potential co-borrowers, whether it’s a spouse or a non-spouse senior living in the home, is to simply wait to get the reverse mortgage on their own after the Medicaid applicant has been approved for Nursing Home Medicaid or HCBS Waivers. This is because a community spouse’s assets are disregarded when it comes to their spouse’s annual Medicaid redetermination, and a non-spouse borrower will not be limited by a co-borrower who is trying to qualify for Medicaid.
For seniors who want to receive long-term care at home, they need to be sure their home is suitable for aging in place. This could mean using some of the funds from the reverse mortgage for home modifications to make it safe and accessible for aging.
1. Reverse mortgages are NOT suited for seniors who want to apply for Medicaid and the payments from the reverse mortgage will put them over the asset limit and they can not reduce them below the limit on a monthly basis. This could be for any reason – the payments are too large, they didn’t need the income, they didn’t plan properly for Medicaid. This applies to single applicants, or married couples with one or both spouses applying, and to all three types of Medicaid long-term care relevant to seniors – Nursing Home Medicaid, HCBS Waivers or ABD Medicaid.
2. Reverse mortgages are NOT suited for seniors who will need to move from their home within five years. This is because the loan will need to be paid back if the senior does not live in the house for 12 consecutive months due to a medical condition or for 6 consecutive months for any other reason. This could apply to a single senior who will move within five years, including into a nursing home, or a married couple where both spouses will move within five years, including into a nursing home.
3. Reverse mortgages are NOT suited for seniors who want to leave their home to their heirs. This is because the heirs will have to pay off the reverse mortgage in order to claim ownership of the home, but they may not be able to afford the payment, which can be expensive because of years of interest being added to the loan.
4. Reverse mortgages MIGHT be suited for seniors who have already applied for Medicaid and have been denied and given a penalty period of ineligibility. Violating the Look-Back Period is the most common reason for being penalized with a period of ineligibility, which could last months or even years. Seniors who have been penalized with a period of ineligibility can not re-apply for Medicaid during that time period, but they presumably still need long-term care and presumably don’t have the money to pay for it. A reverse mortgage can be useful in these situations if the senior who needs long-term care wants to receive that care at home, or if the senior needs nursing home care and they are married to a spouse who does not need care and plans on remaining in the house. It probably won’t make sense if the senior (or both spouses in a married couple) needs nursing home care and will move out of the house, because the loan will be due when they have been living in the nursing home for 12 months.
Our team of Certified Medicaid Planners™ will help you navigate the difficult landscape of Medicaid for long-term care.
