Locking imposes a cost on the lender. The lock deposit is an attempt to shift at least part of that cost to the borrower. Lenders who don't charge to lock because it frightens borrowers away have to cover that cost in some other way. If their locks only cover rates and points, which is typical, they may discover new fixed-dollar fees on the way to closing. Or they may lock with their fingers crossed behind their backs. If the worst happens, they weasel out of it.

However, I think the lender who told you that the lock deposit would be lost if you exercised the right to rescind your refinance was blowing smoke. You will lose the deposit if you walk away before closing. But in the event you close and give notice of intent to rescind within the required 3-day notice period, the law says "...the creditor shall return any money or property that has been given to anyone in connection with the transaction..."

I am not a lawyer, but to me, this says that if you close and rescind, you get back your lock deposit along with any other payments made to the lender.

Should the Upfront Fees on a Reverse Mortgage Torpedo the Deal?

Reverse mortgages allow elderly homeowners to cash-out some or all of the equity in their houses while preserving the right to live there as long as they want. This occasionally creates an inter-generational difference of opinion, as illustrated by the following exchange.

"My parents are thinking about a reverse mortgage; they own their house outright valued at 345,000, and they have a monthly income that they can live off. What they are looking for is to pay off about $20,000 in bills, and maybe take a trip. I looked into a reverse mortgage but don't like the idea of paying $14,000 in upfront fees. What do you suggest?"

I suggest that you pay off their bills and send them on a nice trip. 

Can't afford that? Then encourage them to go ahead with a reverse mortgage. The upfront cost is included in the mortgage. They will get a credit line that they can draw on for any purpose, and the portion that is unused grows over time. For elderly homeowners, it is like having money in the bank.

"Wouldn't a home equity line of credit serve as well, and save most of the upfront fees?"

No, they will have to pay off a home equity line, which defeats the whole purpose. If they have trouble paying their bills out of current income, they will find it even more difficult paying off a home equity loan.

Most elderly homeowners take a reverse mortgage in the form of a credit line. The difference between that and a home equity line is that the reverse mortgage line doesn't have to be repaid during the lifetime of the owner. Of course, this reduces the size of their estate. I hope you aren't being influenced by that.

Readers interested in reverse mortgages have access to lots of good information. For general education, call AARP at 800 434 3410 for a free copy of Home Made Money, an excellent pamphlet on reverse mortgages. You can also order it online at www.aarp.org/revmort. Other good online sources are www.reverse.org, and http://www.mtgprofessor.com/reverse_mortgages.htm.

Assuming you are eligible – you must be over 62 to qualify – you can determine how much money you can draw and what it will cost using an online calculator at one of the following Web sites: www.rmaarp.com, www.revmort.com, www.nrmla.org, or www.ffsenior.com.