Getting the Most from Your Reverse Mortgage

New government regulations make it easier for seniors to get money from their home equity with a reverse mortgage.

Some people save money in brokerage accounts, others accumulate coins in pink, pig-shaped jars, and still others stash cash in their home. If your nest egg is tied up in real estate equity, you might need the help of a reverse mortgage to unlock that wealth and live out your years comfortably.

Easier, less expensive reverse mortgages

The reverse mortgage was one of several topics tackled by the housing bill that was signed into law last July. The bill establishes a higher allowable loan limit for federally-backed reverse mortgages, as well as caps on the upfront fees that homeowners have to pay. In short, these latest changes should make it easier and less expensive for you to cash out your equity. Here are some facts that you need to know:

• Structure your reverse mortgage carefully. Reverse mortgages can be funded as a lump sum payment, a monthly payment, or a line of credit. The option that you choose affects your total interest costs and, ultimately, the value of your estate. Consult with a trusted advisor to determine which structure is most appropriate for you.

• Your home repays the loan, plus interest. Ideally, you'll live out your years in the home. Once you're gone, the home is sold to pay off what you borrowed, plus interest. Whatever's left will be distributed to your heirs.

• Federally-backed reverse mortgages have safeguards. FHA-insured reverse mortgages, called home equity conversion mortgages (HECM), protect you if the lender goes out of business.  Private mortgages, on the other hand, lack this safeguard. Also, government regulation requires that you to attend a counseling session before funding an FHA HECM. This is your opportunity to find out everything you need to know.

• The money's limited. The national limit for an FHA-insured HECM is $417,000, but if you happen to live in a designated high-priced neighborhood, you may qualify for up to $625,500.

• There are upfront fees. The housing bill places a limit on the upfront fees that you can be charged, which is a good thing. Now, the origination fees cannot be greater than $6,000. These fees are calculated as $4,000 on the first $200,000 of money borrowed, plus 1 percent on the remaining amount, up to a total of  $6,000.

• The lender can demand repayment in certain situations. Your loan, plus interest, will become due if you live somewhere else full-time for 12 consecutive months. The lender can also call the loan if the home falls into disrepair, the homeowners insurance lapses, or you fall behind on your property taxes.

If the time has come for you to smash your equity piggy bank, consider the reverse mortgage as an option. But proceed with caution-once you break the bank, it's a lot like Humpty Dumpty, and isn't so easy to put back together again.