With government-guaranteed reverse mortgages, HUD collects an insurance premium -- 2 percent of the home's value -- up front from all borrowers to provide this coverage, so applicants should factor those costs into the total balance of the loan. In addition to the insurance fee, most reverse mortgages have an application fee, an origination fee, closing costs, and monthly service charges. These charges will be added to the amount of the total loan, which makes the reverse mortgage a relatively cheap up-front loan, but does add to the total repayment costs. Loan recipients will still have to pay property taxes and buy homeowners' insurance.

If they have a second mortgage or home equity line of credit, they can still qualify for a reverse mortgage. But any cash they receive from the reverse mortgage ill first pay off the existing mortgages or loans.

Another tax fact to bear in mind: Interest on reverse mortgages is not deductible on income tax returns until the loan is entirely paid off.