Will a Reverse Mortgage Affect My Social Security

A woman researching her reverse mortgage and social security

It is common for reverse mortgage borrowers to also be Social Security recipients. Since many retirees rely on Social Security benefits for income, borrowers may worry reverse mortgage payments will jeopardize those funds. The good news is that reverse mortgage proceeds do not impact social security benefits. They may, however, impact other need-based government programs. 

Are Reverse Mortgage Payments Considered Income?  

 The purpose of a reverse mortgage is to access home equity for a variety of uses, including increased cash flow. Borrowers can take reverse mortgage proceeds in monthly payments, a lump sum, a line of credit, or a combination. Regardless of how the borrower takes their proceeds, the IRS does not count loan proceeds as income. 

Can a Reverse Mortgage Impact Social Security or Medicare? 

Social Security and Medicare are government-sponsored benefits. Eligibility for these benefits is based on age and in the case of Social Security, contributions made over your working life. These funds come through non-means-tested programs, which means receipt of these funds is not dependent on capital, income, or assets. The money you receive from a reverse mortgage will not alter Social Security or Medicare in any way. 

A reverse mortgage, however, could impact payments from other government programs.  

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Does a Reverse Mortgage Affect Supplemental Security Income and Medicaid?

Supplemental Security Income (SSI) is a federal government program that provides funds to blind or disabled individuals with little or no income. The purpose of these funds is to meet basic needs for food, clothing, and shelter. In 2022, the universal liquid asset limit was $1,767 for individuals and $2,607 for couples. 

Medicaid is also a need based program that considers an individual’s income and financial assets. It is for adults who have low income, children, pregnant women, and individuals older than 65. The income limits vary by state. Though, in 2022, typical asset limits for Medicaid benefits were $2,523 for an individual and $5,046 for a married couple. Some states may have limits that are lower or higher.  

Given that both Medicaid and SSI are both need-based programs, the way you choose to take reverse mortgage payments can impact eligibility. If your monthly reverse mortgage payments plus other savings and cash exceed the program asset limits, you may be ineligible for government funds. Borrowers should verify the asset limits for these programs before applying for a reverse mortgage.  

To benefit from a reverse mortgage without losing Medicaid or SSI coverage, borrowers may consider receiving all payments through a line of credit. Though not considered income, funds taken from a reverse mortgage and saved in a bank account increase an individual’s liquid assets. With a line of credit, an individual could withdraw and spend funds as needed, without adding money to their bank account.

Using a Reverse Mortgage to Maximize Social Security Benefits 

Because delaying Social Security benefits allows recipients to collect higher payments, borrowers in need of extra money for retirement may find a reverse mortgage gives them the financial flexibility to postpone their Social Security. This is a potential way of maximizing the monthly benefit when they do begin to receive Social Security benefits. It’s worth noting, however, that there are varying opinions on this strategy, and in their investigation, the CFPB found that in most cases it was not worthwhile. 

As with any financial decision, it is important to weigh the pros and cons of this strategy. Before making any decisions, it is best to consult with a financial advisor to find out the best option for your situation.