Many seniors are looking into getting a reverse mortgage and are finding out that the only type of reverse mortgage that is available today is the FHA HECM (which stands for the Home Equity Conversion Mortgage) or as more commonly called - the FHA Reverse Mortgage.
If you are a senior who is considering a reverse mortgage, be sure that you ask about the potential risk of becoming ineligible for Medicaid as a result of selecting the wrong payout option for your reverse mortgage. This risk of becoming ineligible for Medicaid is something that many seniors are unaware of (and loan officers too!) and it could potentially have devastating consequences.
Unofficially, the term you want to ask them about is something called “Loss of Medicaid Eligibility”.
If you ask your loan officer about it and he doesn’t know what you are talking about, you might want to consider finding another loan officer. It is that important.
Loss of Medicaid Eligibility: What Is It?
With a reverse mortgage there are several different ways that you can access the equity in your house. You can choose to get a lump sum, monthly disbursements or a line of credit. Some of the types of payouts increase the risk of you losing your Medicaid Eligibility, and one does not.
The essence of a LOME risk is that a reverse mortgage borrower could pile up cash in an account and deny themselves the significant health benefits that medicaid could provide. Medicaid is a federal-state health care program for the poor. To qualify for Medicaid, a senior must show monetary evidence of poverty. Although the program varies from state to state, a federal “means test” says that you can have no more than a few thousand (the number changes regularly) dollars in liquid assets.
Which means if you took out a reverse mortgage, chose the wrong payout program and later become ill and needed long term care, you may be denied Medicaid coverage based on your liquid assets.
Loss of Medicaid Eligibility: A General Rule of Thumb
Generally speaking, all reverse mortgage payout options except for the line of credit option carry significant LOME risks because they could lead to risky accumulation of countable assets.
Does this mean that you should always choose the line of credit payout option when getting a reverse mortgage? I was taught long ago to try to avoid using always and never, but I can say this…
Be sure to do your homework about your options - and what possible implications your payout choices may have. I can think of few things as devastating as losing assets as a result of an uninformed decision that could have been avoided just by being aware of other options that were available. Be sure to speak with a reverse mortgage expert before you finalize your reverse mortgage, it could potentially save you hundreds of thousands of dollars.