Special Cases with Reverse Mortgages

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If you are considering a reverse mortgage, there are a number of things you need to take into account that you probably do not have the specialized knowledge to consider. For example, can you use a reverse mortgage to pay off your existing mortgage? Does your existing mortgage need to be fully paid off to take out a reverse mortgage? What will happen to your social security, Medicare, and Medicaid? If you have been wondering about any of these things, read on to get a better understanding of the inner mechanics of reverse mortgages.

Your Existing Mortgage

The rule for existing mortgages and reverse mortgages is simple: your mortgage must be paid off in its entirety for you to qualify to take out a reverse mortgage. This rule is upheld religiously, however there is one exception. If your reverse mortgage payout is more than your existing debt on your mortgage, you are entitled to use your reverse mortgage payout to pay off the remainder of your existing mortgage.

Because of this, reverse mortgages are often used to allow the homeowner to “forget about” paying mortgage payments as long as they are in their current home. If this is all that is keeping you from retirement, then by all means consider a reverse mortgage. Keep in mind, though, that you should still have enough money set aside and income after retirement to sustain yourself.

More commonly, this clause is used to finish off a small portion of a mortgage, allowing seniors to concentrate the remaining portion of their reverse mortgage on other things. While you receive different advice from different people, it is unadvisable to use your reverse mortgage to pay off your existing mortgage if the payout from your reverse mortgage is almost up to the remaining amount owed on your existing mortgage. Plan carefully to avoid problems down the road.

Medicare, Medicaid, and Social Security

Social security and Medicare are automatically unaffected by a reverse mortgage in all situations. In other words, nothing will change for either of those two supplements if you take out a reverse mortgage. Medicaid and SSI (Supplemental Security Income), however, are a different story. The money that you receive from a reverse mortgage must be used immediately for you to ensure that you retain your eligibility for both of these programs.

This is borne out of the fact that money you hold onto will be counted as an asset of yours. If this sets you over your allowed limit to keep your eligibility for Medicaid and SSI, then you run the risk of getting dropped. When you are figuring out if a reverse mortgage is the right option for you and what your financial situation will be like if you get one, make sure you do not forget about this fact. It is a common, but detrimental, mistake to include both reverse mortgages and Medicaid or SSI without realizing that unless the money from the reverse mortgage is spent immediately, this may be an impossibility. Tread carefully in this area.

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