Some senior homeowners have been wary of applying for a reverse mortgage because the loans have a reputation for high upfront costs. Lenders have responded by lowering their fees on some reverse mortgages.

Lower fees make reverse mortgages more enticing

From October 2009 to March 2010, business declined by more than half for reverse mortgage lenders, partly because dropping home values left some homeowners without enough equity to borrow against. While reverse mortgage loans can be beneficial to seniors, the high closing costs and mortgage insurance premiums caused many homeowners to balk. Now, some of the largest reverse mortgage lenders in the country are reducing their fees to make the loans more attractive to borrowers.

How the reverse mortgage works

A reverse mortgage, available only to homeowners age 62 and above, allows you to use the equity in your home for living expenses, home improvements, medical expenses or emergency funds. The amount that you can borrow depends on your age and the amount of equity in your home, rather than on a credit report or income, since the loan does not have to be repaid until the home is sold.

Under current laws, you can get a reverse mortgage and continue to live in your home as long as you pay property taxes and maintain the property, even if the value of your home drops below the amount of the reverse mortgage.

Choose a payment option

You can choose a monthly payment for extra income, a line of credit for access to an emergency fund, or a lump sum payment to pay off your current mortgage or other debts or to make improvements to your property. A lump sum reverse mortgage loan is typically a fixed-rate loan, while a line of credit or a monthly income loan is usually an adjustable rate loan.

Some reverse mortgage lenders are waiving the origination and monthly servicing fees on these loans, which could save you as much as $6,000 to $8,000 on a $500,000 home. Reverse mortgage borrowers still need to pay some closing costs such as title insurance, an upfront insurance premium (typically 2 percent of the home value or lending limit), and an annual fee (typically 0.5 percent of the mortgage balance). Most seniors wrap those costs into their loan.

Lower fees make reverse mortgages a better deal

Now that fees for reverse mortgage loans are lower, it's a good time to gather information about these loans to see if they fit your financial planning needs.

Michele Lerner

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,

Next: Should I stay or should I go? How to decide where to retire >>>