A reverse mortgage is a loan secured by the value of a home and does not require payments as long as the borrower lives in the home. Most reverse mortgage loans are Home Equity Conversion Mortgages (HECMs). They are insured by the Federal Housing Administration. In addition to HECM loans, some lenders may offer proprietary reverse mortgage loans, which are not insured by the federal government.
Reverse mortgages enable homeowners age 62 and older to convert a portion of their home equity into cash. Reverse mortgage proceeds can be used for any purpose. This includes helping to pay for in-home personal care, adult day services, home modifications to enable aging in place, or long-term care insurance (LTCI). However, some older adults are apprehensive about depleting their home equity to meet long-term services and supports needs because their homes represent a major source of wealth and, therefore, their financial security.
A reverse mortgage is considered a loan, not income. As such, the loan will not generally be viewed as a countable asset under Supplemental Security Income (SSI) or Medicaid guidelines. Reverse mortgage proceeds do not count toward the federal asset limit when they are spent in the same month they are received. However, proceeds that are unused at the end of any month may be considered a countable asset. If that amount pushes the borrower over the federal asset limit, the borrower could lose their SSI or Medicaid eligibility. Borrowers who qualify for these public programs therefore need to understand how withdrawal decisions will affect their eligibility. HECMs require counseling prior to taking out a loan (see also Reverse Mortgages).
Policymakers have at times proposed incentives to promote the use of reverse mortgages to fund other financial services products. For example, one proposal would waive the up-front mortgage insurance premium for federally insured reverse mortgages when all the loan proceeds are used to buy LTCI. In general, taking out a loan to pay for insurance is risky. And fully depleting home equity to pay for expensive private LTCI is especially risky for older adults. For many people, home equity is their main of accumulated wealth. Depleting home equity to pay for insurance could even result in loss of the home to foreclosure. Borrowers may not have other means of paying for required property taxes, homeowners’ association dues, insurance, and home maintenance.
REVERSE MORTGAGES: Policy
REVERSE MORTGAGES: Policy
Public benefits eligibility
The status of the home must be fully protected under Medicaid eligibility rules (see also Financial Protections and Choice for Medicaid Participants and Their Families and Reverse Mortgages).
The federal government must refrain from counting reverse mortgage proceeds when determining eligibility for public benefit programs.
Use of federal incentives
The federal government must not encourage the use of reverse mortgages to purchase private long-term care insurance.
If policymakers do offer incentives for using reverse mortgages to pay for long-term services and supports, they:
- must be voluntary;
- should reduce reverse mortgage costs; and
- should begin only as demonstration programs so that policymakers can evaluate their effectiveness and impact on consumers, as well as ensure appropriate consumer protections.