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Reverse mortgage and loans
Purpose: To explain how reverse mortgages and loans or mortgages affect SSI related Medicaid and Long-term care programs.
Reverse Mortgages and Loans
Reverse mortgage monthly payments are not considered income. If the client retains the payment from the reverse mortgage it would be considered a resource the month following the month of receipt and would affect eligibility if the client’s resources are over the standard. The client can’t give the funds away without receiving adequate consideration without imposing a penalty.
Home Equity Conversions and Reverse Mortgages HEC
(Home Equity Conversion) plans are designed to allow elderly homeowners to convert the value of their homes into cash without being forced to leave their homes. Under these plans, the home is either mortgaged or sold to a financial institution or other buyer in exchange for a regular cash payment or line of credit. The most common HEC is the Reverse Mortgage. They allow the homeowner to borrow equity out of their home with no repayment as long as they live in the home. The notes are due when the house ceases to be the borrower’s main residence. Proceeds from a reverse mortgage are loan proceeds, which do not meet the definition of income per SI 00815.350. (SI 00815.350 is the SSA Policy Manual)
Reverse Mortgages and Lines of Credit
We do not count a line of credit as an available resource beyond the idea that it comprises home equity. It is not a resource all by itself. A line of credit is simply one method someone can access their home’s equity in a reverse mortgage. The equity is still in the home until the credit line is used. Once the client takes a cash advance payment from the line of credit, the cash they take could become an available resource if they still have it on the first of the month after receiving the payment. A client takes out a reverse mortgage of $150,000 (principle before fees) and took the proceeds as a $150,000 line of credit. Until the client actually uses the line of credit, it is still part of the home’s equity. In that sense, it is a resource, but the client does not have a separate available resource of $150,000. If on March 2 they take a cash advance of $50,000 on their line of credit the home’s equity has been reduced by $50,000. The remaining $100,000 in the line of credit is still part of the home’s equity until it is accessed. If they put that $50,000 from the line of credit into a bank account, whatever is still in the account on April 1 is an available resource. If a client has $555,000 equity in their home, had taken out a reverse mortgage line of credit of $150,000 but had not accessed the credit, the client still had $555,000 equity (less any loan fees). If the client did not have a spouse, minor child, or dependent child residing in the home, then the client would not be eligible. The client still has equity in excess of $552,000. However, if the client had accessed their line of credit and had used $60,000 on debts, the home’s equity is reduced by $60,000 by the time they request LTC, then the client’s equity is less than $555,000 and is potentially eligible.
Reverse Mortgages and Cash Proceeds
If they took the option of a cash payment as proceeds from the reverse mortgage, any portion of the cash they received that is still available on the first of the month following the receipt can be considered an available resource. Same client as above but instead of taking the proceeds as a line of credit they took it as a $150,000 lump sum. On March 2 they client received the $150,000 proceeds from the loan. They have now reduced their home’s equity to $405,000. However, you need to determine what happened to the cash proceeds. If on April 1 all $150,000 was still in the checking account then it is an available resource on April 1.
Transfer of certain notes and loans
The term "assets" includes funds used to purchase a loan or mortgage unless the note, loan or mortgage:
- Has a repayment term that is actuarially sounds (as determined in accordance with actuarial publications of the Office of Chief Actuary of the Social Security Administration);
- Provides for payments to be made in equal amounts during the term of the loan, with no deferral and no balloon payments made; and
- prohibits the cancellation of the balance upon the death of the lender.
If the loan, or mortgage does not meet the criteria above, the value of the note, loan or mortgage as of the date of the LTC medicaid application is counted as a resource.