Reverse mortgages just got much better for retirees. The reverse mortgage is open for seniors who are cash-poor and house-rich. This specific type of mortgage allows the senior to make use of the equity in their home and get cash without the need to make mortgage payments. the senior can use the reverse mortgage for anything. Virtually all older borrowers need the funds to help defray living and medical costs.

You’ll remember that a reverse mortgage permits people who are sixty two years or older to borrow against their home equity. But unlike traditional home loans, no payment is due on a reverse mortgage until the homeowner moves, sells the property or expires. If the property is sold, any equity that is left after the reverse mortgage is repaid is allocated to the borrower or the borrower\’s beneficiaries. The repayment amount can\’t exceed the value of the dwelling.

However, costs for reverse mortgages were significantly more than typical mortgage loans, and other incentives to push them took advantage of older borrowers. So the Housing and Economic Recovery Act of 2008 made provision to help seniors by reducing those fees and any fraud associated with reverse mortgages.

Significantly, the law reduces expenses on reverse mortgages. It trims the origination fee to 2% of the first $200,000 borrowed and 1 percent for any amount after that. The maximum origination fee can\’t surpass $6,000. The fee is currently limited to 2 percent of the loan limit or of the home value. The law does allow for the cap to adjust, according to the annual percentage increase in the consumer price index.

Another change is the introduction of a new reverse mortgage, called the Home Equity Conversion Mortgage Saver option, or HECM Saver. It has a cheaper upfront mortgage insurance premiums, or MIP, compared with the traditional HECM reverse mortgage, now known as the standard option. The offset, due to the lower insurance premium for the senior and other program changes, is a 10% to 18 percent reduction in the highest loan amount provided on the saver option, and 1 percent to 5% on the standard option, depending on the borrower\’s age and interest rate. The lower loan amount provided on the saver option means the FHA\’s risk exposure is decreased.

Mortgage insurance insulates lenders from loan losses, even though borrowers pay the cost. Most reverse mortgages are insured through the Federal Housing Administration, or FHA, a division of the Department of Housing and Urban Development.