Reverse Mortgage Amount

• The amount you can get from a reverse mortgage depends on the age of the youngest borrower, the appraised value of the home, the current interest rate and the equity in the home. The FHA offers the standard Home Equity Conversion Mortgage, or HECM, or the HECM Saver to the homeowner. The Saver costs less on the front end, but the borrower gets less cash. Most reverse mortgages do not permit a loan value of much more than half the appraised value of the house, even for houses that are nearly paid off.
  
  

Fees

• The origination fee for a reverse mortgage loan is usually 2 percent of the first $200,000 and 1 percent for amounts that are more than $200,000. An insurance premium and standard closing costs are on the front end, plus a monthly servicing fee and interest accrue for payment at the end of the loan. According to "USA Today," using AARP figures, the cost calculations for a reverse mortgage of $67,742 on a $250,000 house for 12 years at 7 percent total $203,771.
  
  

Advantages

• If seniors have no significant income, a second mortgage or bank loan may not be available, since most bank mortgage approvals require an income-to-debt ratio and monthly payments. The reverse mortgage may help seniors avoid foreclosure by providing them with a long-term income source and elimination of a monthly house payment. The federal government requires counseling for a reverse mortgage loan so that seniors understand the issues and can ask questions. A reverse mortgage can be a reasonable choice under some circumstances, but AARP suggests alternatives, such as refinancing, relocating, downsizing or taking a roommate.
  
  

Disadvantages

• Most contracts require that you repay the loan in full if you do not live in the house. You can have an absence of one year, so if you go to the nursing home for an extended stay, your reverse mortgage must be repaid. If you fail to pay the taxes and insurance or fail to make repairs, the loan company can require repayment. Read the terms of any reverse mortgage carefully. You must follow the terms exactly, and repayment will not give you back the fees. There is no tax deduction for interest on a reverse mortgage loan until you pay the loan in full, and interest continues to accrue all the time you get payments. The mortgage company makes money on the front end and money on the back end so that it can pay you during the middle of the loan.