EDITOR'S NOTE: This article was originally published in the January 2011 issue of Kiplinger's Retirement Report. To subscribe, click here.

If you're shopping for a reverse mortgage, you have a new choice to mull over. The federal government has expanded its home equity conversion mortgage, or HECM, to include a product with a smaller loan amount and lower fees.

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The new HECM Saver made its debut in fall 2010. The traditional HECM is now known as the HECM Standard. Both types allow homeowners age 62 and older to tap their home equity. The loan must be repaid with interest when the homeowner dies, sells the house, or moves out for 12 months or more.

Borrowers will receive about 10% to 20% less in proceeds with the Saver than with the Standard -- but at a cheaper cost. "The new Saver has virtually eliminated the upfront insurance premium," says Eric Declercq, vice-president for the reverse-mortgage operations of MetLife Bank.

When you take a federally backed reverse mortgage, you pay an upfront mortgage insurance premium. The premium is not based on the loan amount. Rather, it's based on the "maximum claim amount," which is the home's appraised value, the sales price or the government's lending limit of $625,500 -- whichever is lowest.

Smaller Loans and Smaller Fees

For the HECM Saver, the initial insurance premium is 0.01% of the "maximum claim amount," while it remains 2% for the Standard. The upfront premium on a Saver loan with a $300,000 maximum would be $30, while the Standard premium would be $6,000. "It's a big savings for consumers," says Jeff Lewis, chairman of Generation Mortgage.