It is often suggested that funds received from a reverse mortgage do not affect either government or private retirement benefits; however, there have been cases where the government considered those funds as assets, which resulted in disqualification for Medicaid.
The following are three examples when funds from a reverse mortgage can affect government benefits:
(1) If a borrower is on Medicaid, any reverse mortgage proceeds he or she receives must be used immediately to stay within state and/or federal government guidelines for Medicaid recipients.
(2) Any funds that are retained by a borrower count as an asset and must be included when calculating Medicaid eligibility.
(3) Any income that is generated from the investment of funds received from a reverse mortgage – depending on the tax status of the investment vehicle being used – may be required to be included in the amount of Social Security benefits that are taxable, and at the level those benefits are taxed.