According to a recent data release, the HECM Saver Reverse Mortgages were issued in December 2010. That might not seem like much, until you realize that it implies a gain of 120% in only one month! It seems unlikely that the HECM Saver will revive the ailing reverse mortgage industry, but at the very least, it represents a solid alternative to the HECM Standard.

The HECM Saver was introduced in October 2010 to great fanfare. It differs from the HECM Standard only in the absence of an upfront FHA insurance premium, which is offset by smaller loan amounts. The product was designed to be less risky for lenders and to be less expensive for borrowers, and it appears to have filled a solid niche in the the reverse mortgage marketplace.

In fact, the Wall Street Journal recently reported that the HECM Saver reverse mortgage compares favorably with Home Equity Line of Credit (HELOC). Even when you factor in the annual insurance premium of 1.25%, the total interest rate is still apparently below current HELOC rates. Moreover, the reverse mortgage variable rate and HELOC rate are typically derived from similar rate indexes, which means that this spread should remain constant, regardless of any fluctuations in interest rates.

While the WSJ conceded that HECM reverse mortgage closing costs are usually higher than the fees associated with obtaining a HELOC, it offered contradictory examples which downplayed its significance. It featured one borrower that had obtained an HECM Saver in order to avoid temporarily dipping into savings, and who planned to repay the reverse mortgage as soon as his investments recovered. However, it also featured a different borrower that planned to deliberately hold a reverse mortgage for longer period of time, in order to amortize the closing costs over a longer period of time.

Without knowing more information, it’s impossible to say whether either borrower made the right choice, financially. Short-term HECM Saver borrowers will end up paying a higher APR when fees are taken into account, while long-term borrowers risk paying compound interest and steadily losing their home equity. For both sets of borrowers, then, the key is looking at a side-by-side APR comparison for the HECM Saver and a HELOC, and decide accordingly.

To be fair, there are certain intangible benefits of choosing the reverse mortgage (over a HELOC), namely that you don’t have to make monthly payments and that the lender can’t decide to suddenly revoke the loan if market conditions change. For some borrowers, this might be enough to offset the higher closing costs.