Are you enjoying your retirement to the fullest?
If you’re 62 or older, a reverse mortgage loan could help you tap into your home's equity to cover your golden years — but as with any financial solution, it’s important to understand how it would work with your lifestyle.
Unlike other mortgages, a reverse mortgage does not require monthly payments. A reverse mortgage allows you to access the equity from your home as either a line of credit or a lump sum. Of course, that begs the question: does this additional income mean you have to give up other helpful financial programs?
From social security to Medicare and Medicaid, read on to find out which benefits are impacted by a reverse mortgage and why, so you can manage your retirement finances more effectively.
Benefits That Aren’t Affected by a Reverse Mortgage
Financial schemes that are not based on income don't change when you take out a reverse mortgage. This includes government-based programs like Medicare coverage and social security benefits, as well as most pensions.
Social security benefits take into account the money you and your spouse paid into the system while in employment — not your assets and income in retirement. Your social security benefits will be unaffected by a reverse mortgage, although you may find that getting a reverse mortgage increases your social security benefits. That’s because a reverse mortgage may provide you with enough money to avoid claiming social security benefits until the latest date possible, which is when they’re at their highest value.
In most cases, a reverse mortgage won't affect your pension, either. Your pension will have already been established with your employer or in an investment portfolio, so a reverse mortgage will have no negative impact on these benefits. In fact, a reverse mortgage allows you to hedge against problems with your investment portfolio — like a down market — and helps protect your long-term wealth.
Benefits That May Be Affected by a Reverse Mortgage
The proceeds of your reverse mortgage won't count as taxable income, because the money comes from a loan that eventually needs to be repaid. Having said that, social service programs that determine eligibility based on your income and assets could be affected if you take out a reverse mortgage.
Programs with countable asset limits include:
- Supplemental Security Income (SSI)
- Food Stamps
- Temporary Assistance for Needy Families (TANF)
- Wartime Pensions
Whether you receive your reverse mortgage payment in one lump sum or save up payments in your bank account, you could exceed the income limits for these programs. But that doesn’t mean you can’t regain your eligibility once you’ve taken out a reverse mortgage.
If you take out your reverse mortgage payment in one lump sum and use all the money immediately, you could find yourself back within the income limits. This is not an advisable move unless you need the line of credit to pay off a large amount of debt or another home.
If your reverse mortgage payments have accumulated in your bank account, you could do a "spend down." This involves spending the excess amount of money on non-countable assets, such as home repairs or medical equipment that would not be covered by your health benefits. It’s important to find out what qualifies as a non-countable asset in your state, as spending down on the wrong assets can endanger your eligibility for some programs.
Another way to stay within the income limit for benefits is to arrange an adjustable rate reverse mortgage. By setting monthly payment amounts or accessing a line of credit, you can ensure you aren’t pushed over the income limits each month. Before proceeding with any of these strategies, however, it’s essential to understand the exact requirements for each financial program, and always seek advice from a benefits specialist.
Which Benefits Can You Keep?
While a reverse mortgage doesn’t automatically mean the end of your benefits, you should speak to a Certified Reverse Mortgage Professional (CRMP) before moving forward with a reverse mortgage. A CRMP will be familiar with the latest benefit requirements and can accurately review your unique case.
Contact ARAMCO and schedule an appointment with one of our certified reverse mortgage professionals to see if you could benefit from a reverse mortgage in your retirement.