On yesterday's show our first call was from Howard. He's 75 and his wife is 65. Their house (he said) is worth about $170,000. He has a $20,000 mortgage and they are on a fixed income. They're wondering if a reverse mortgage is right for them. He went and talked to a lender who quoted them 10 percent in closing costs, which seemed high.

Darned right it's high. HUD is now the only backer of reverse mortgages. The fees were recently reduced. According to one lender who contacted me during the show, the FHA fee is 2 percent and the lenders fee was recently reduced to less than 2 percent (I think it's 1 percent). Then, you have closing costs related to title, credit score, appraisal, attorney's fees, etc.

Here's one lender's opinion of how much Howard and his wife could get and how much it would cost:

Ilyce,

I am in my office working this Sunday morning. I own a Reverse Mortgage Company locally.

I just heard the call on Reverse Mortgages on your WSB show.

Let me give you a couple of rules-of-thumbs. On the most popular RM, which is the monthly adjusting loan, the closing costs in Georgia average 5.5 percent of the appraised value. I see that number every day.

FHA gets 2 percent
My company get up to 2 percent (the new rule lowers that)
The rest of the costs cover appraisal, credit, title and Attorney etc...

My comment on the caller:

A 70 year old with a $160,000 home could receive net around $97,000. In that gentleman’s situation, he owes $20,000. So after paying the mortgage, he would have access to $77,000.

I have developed an informal way to calculate the amount a senior could receive.

You take the age of the youngest borrower and subtract “9”. That number is the percentage they could receive ‘net’ after closing costs. So 70 minus 9 = 61. Home value $160,000 x .61 = $97,600.

That information is based on the current interest rate on the monthly adjusting rate
which is under 4 percent. The monthly adjusting rate has been at or under 4 percent for most of 2008.

Where can you go to get good information on Reverse Mortgages?

www.reversemortgage.org (from the National Reverse mortgage Lenders Association)
www.hud.gov (which backs reverse mortgages)

There is some additional information on the AARP site as well.

Reverse Mortgage News: HUD approved a single national loan limit of $417,000 for federally-insured Home Equity Conversion Mortgages (HECM, also known as Reverse Mortgages).

Reverse mortgages aren't perfect, and they're not cheap. But they're cheaper and better regulated than they were, so if you're house rich, cash poor, on a fixed-income, age 62 or older, and either own your home outright or have a very small mortgage, this could be a good choice.